Ownership and bank efficiency in Africa: True fixed effects stochastic frontier analysis

This paper investigates the effects of ownership patterns on banks’ cost and profit efficiencies taking a sample of 607 commercial banks operating in 53 African countries during the period 2005–2015. Using pooled and modified true fixed effects (TFE) stochastic frontier panel approaches, we obtain two principal results. First, foreign-owned banks are not more profit or cost efficient than their domestic peers. Second, privately owned banks outperform state-owned banks. These findings result not only from bank-level inefficiencies but are explained by bank-level characteristics and macroeconomic conditions. Specifically, larger, older, and listed banks are associated with higher profit efficiency. This study also reveals that ownership concentration (blockholding) has adverse effects on the efficiency of banks.