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What determines differences in foreign bank efficiency? Australian evidence

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  • Sturm, Jan-Egbert
  • Williams, Barry

Abstract

This study examines the factors that determine differences in efficiency of foreign banks in the host market (Australia). The impact of home market, host market and parent bank characteristics are considered within the frameworks offered by comparative advantage and new trade theories. Parametric distance functions are used to estimate the efficiency of foreign banks in Australia, and the robustness of model specification is tested using both general-to-specific modelling and extreme bounds analysis. It is found that following clients reduces the efficiency of profit creation. Incumbent bank's market share acts as a barrier to entry, while parent bank profits do not improve host nation efficiency. The limited global advantage hypothesis was found to be relevant for banks from the United Kingdom, while banks from the United States were generally less efficient.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 20 (2010)
Issue (Month): 3 (July)
Pages: 284-309

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Handle: RePEc:eee:intfin:v:20:y:2010:i:3:p:284-309

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Web page: http://www.elsevier.com/locate/intfin

Related research

Keywords: Foreign bank efficiency Distance functions Extreme bounds analysis Barriers to entry Following clients;

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References

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Cited by:
  1. Valentin Zelenyuk & Claudia Curi & Paolo Guarda & Ana Lozano-Vivas, 2011. "Is foreign-bank efficiency in financial centers driven by home-country characteristics?," CEPA Working Papers Series WP022011, School of Economics, University of Queensland, Australia.
  2. Sturm, Jan-Egbert & Williams, Barry, 2010. "What determines differences in foreign bank efficiency? Australian evidence," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 20(3), pages 284-309, July.
  3. Cândida Ferreira, 2011. "European integration and banking efficiency: a panel cost frontier approach," Working Papers Department of Economics 2011/04, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  4. Claudia Curi & Paolo Guarda & Ana Lozano-Vivas & Valentin Zelenyuk, 2013. "Is foreign-bank efficiency in financial centers driven by home or host country characteristics?," Journal of Productivity Analysis, Springer, vol. 40(3), pages 367-385, December.
  5. Oskar Kowalewski, 2011. "When are multinational banks getting a bang for their buck on their subsidiaries abroad?," National Bank of Poland Working Papers 97, National Bank of Poland, Economic Institute.
  6. Berger, Allen N., 2007. "Obstacles to a global banking system: "Old Europe" versus "New Europe"," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 1955-1973, July.

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