Developments in the efficiency of the Thailand banking sector: a DEA approach
AbstractPurpose – The purpose of the present paper is to empirically analyze the efficiency of the Thailand banking sector during the period of 1999-2008. Design/methodology/approach – The efficiency estimates of individual banks are evaluated by using the data envelopment analysis approach. The central tendency and parametric method based on the Tobit regression is employed to investigate the Thailand banking sector's production efficiency while controlling for the potential effects of internal (bank-specific characteristics) and external (macroeconomic and industry specific) contextual variables. As a robustness check, following Banker and Natarajan among others, the second-stage regression is also estimated by using the ordinary least square regression method, while the standard errors are calculated by using White's specification to adjust for cross-section heteroskedasticity. Findings – During the period under study, the empirical findings indicate that scale inefficiency outweighs pure technical inefficiency in determining the Thailand banking sector's technical efficiency. The results from the multivariate regression analysis suggest that banks with higher loans intensity and better capitalized tend to exhibit higher efficiency levels. On the other hand, credit risk is negatively related to bank efficiency. The empirical findings suggest that the recent global financial crisis exerts negative impact on the efficiency of Thailand banks. The results indicate that the domestic banks have exhibited higher TE compared to their foreign bank counterparts. Research limitations/implications – Owing to its limitations, the paper could be extended in a variety of ways. First, the scope of this study could be further extended to investigate changes in cost, allocative, and technical efficiencies over time. Second, future research into the efficiency of the Thailand banking sector efficiency could also consider the production function along with the intermediation function. Finally, investigation of changes in productivity over time as a result of technical change or technological progress or regress by employing the Malmquist total factor productivity index could yet be another extension to the paper. Originality/value – Although the literature examining the efficiency of financial institutions with parametric and/or non-parametric frontier techniques has expanded rapidly in recent times, these studies have been confined to the US banking sector or the banking sectors in the Western and developed countries. However, empirical evidences on the developing countries banking sectors in general and of the ASEAN countries in particular are relatively sparse. The present paper attempted to fill a demanding gap in that case by providing new empirical evidence on the sources and determinants of the Thailand banking sector's efficiency.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Emerald Group Publishing in its journal International Journal of Development Issues.
Volume (Year): 9 (2010)
Issue (Month): 3 (July)
Contact details of provider:
Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Staikouras, Christos & Mamatzakis, Emmanuel & Koutsomanoli-Filippaki, Anastasia, 2008. "An empirical investigation of operating performance in the new European banking landscape," Global Finance Journal, Elsevier, vol. 19(1), pages 32-45.
- Berger, Allen N. & Humphrey, David B., 1997.
"Efficiency of financial institutions: International survey and directions for future research,"
European Journal of Operational Research,
Elsevier, vol. 98(2), pages 175-212, April.
- Allen N. Berger & David B. Humphrey, 1997. "Efficiency of financial institutions: international survey and directions for future research," Finance and Economics Discussion Series 1997-11, Board of Governors of the Federal Reserve System (U.S.).
- Allen N. Berger & David B. Humphrey, 1997. "Efficiency of Financial Institutions: International Survey and Directions for Future Research," Center for Financial Institutions Working Papers 97-05, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Hoff, Ayoe, 2007. "Second stage DEA: Comparison of approaches for modelling the DEA score," European Journal of Operational Research, Elsevier, vol. 181(1), pages 425-435, August.
- Saovanee Chantapong, 2005. "Comparative Study of Domestic and Foreign Bank Performance in Thailand: The Regression Analysis," Economic Change and Restructuring, Springer, vol. 38(1), pages 63-83, 03.
- Hirtle, Beverly J. & Stiroh, Kevin J., 2007.
"The return to retail and the performance of US banks,"
Journal of Banking & Finance,
Elsevier, vol. 31(4), pages 1101-1133, April.
- Beverly J. Hirtle & Kevin J. Stiroh, 2005. "The return to retail and the performance of U.S. banks," Staff Reports 233, Federal Reserve Bank of New York.
- Kevin Stiroh, 2006. "New Evidence on the Determinants of Bank Risk," Journal of Financial Services Research, Springer, vol. 30(3), pages 237-263, December.
- Berger, Allen N, 1995.
"The Relationship between Capital and Earnings in Banking,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 27(2), pages 432-56, May.
- Allen N. Berger, 1994. "The relationship between capital and earnings in banking," Finance and Economics Discussion Series 94-2, Board of Governors of the Federal Reserve System (U.S.).
- Allen Berger, 1994. "The Relationship Between Capital and Earnings in Banking," Center for Financial Institutions Working Papers 94-17, Wharton School Center for Financial Institutions, University of Pennsylvania.
- De Bandt, Olivier & Davis, E. Philip, 2000. "Competition, contestability and market structure in European banking sectors on the eve of EMU," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 1045-1066, June.
- Michelle Clark Neely & David C. Wheelock, 1997. "Why does bank performance vary across states?," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 27-40.
- Altunbas, Y. & Gardener, E. P. M. & Molyneux, P. & Moore, B., 2001. "Efficiency in European banking," European Economic Review, Elsevier, vol. 45(10), pages 1931-1955, December.
- Fotios Pasiouras & Aggeliki Liadaki & Constantin Zopounidis, 2008. "Bank efficiency and share performance: evidence from Greece," Applied Financial Economics, Taylor & Francis Journals, vol. 18(14), pages 1121-1130.
- David Hauner, 2005.
"Explaining efficiency differences among large German and Austrian banks,"
Taylor & Francis Journals, vol. 37(9), pages 969-980.
- David Hauner, 2004. "Explaining Efficiency Differences Among Large German and Austrian Banks," IMF Working Papers 04/140, International Monetary Fund.
- Leightner, Jonathan E. & Lovell, C. A. Knox, 1998. "The Impact of Financial Liberalization on the Performance of Thai Banks," Journal of Economics and Business, Elsevier, vol. 50(2), pages 115-131, March.
- Pasiouras, Fotios & Kosmidou, Kyriaki, 2007. "Factors influencing the profitability of domestic and foreign commercial banks in the European Union," Research in International Business and Finance, Elsevier, vol. 21(2), pages 222-237, June.
- George J. Benston, 1965. "Branch Banking And Economies Of Scale," Journal of Finance, American Finance Association, vol. 20(2), pages 312-331, 05.
- Kosmidou, Kyriaki & Pasiouras, Fotios & Tsaklanganos, Angelos, 2007. "Domestic and multinational determinants of foreign bank profits: The case of Greek banks operating abroad," Journal of Multinational Financial Management, Elsevier, vol. 17(1), pages 1-15, February.
- Unite, Angelo A. & Sullivan, Michael J., 2003. "The effect of foreign entry and ownership structure on the Philippine domestic banking market," Journal of Banking & Finance, Elsevier, vol. 27(12), pages 2323-2345, December.
- Eichengreen, Barry & Gibson, Heather D, 2001. "Greek Banking at the Dawn of the New Millennium," CEPR Discussion Papers 2791, C.E.P.R. Discussion Papers.
- Pasiouras, Fotios, 2008. "Estimating the technical and scale efficiency of Greek commercial banks: The impact of credit risk, off-balance sheet activities, and international operations," Research in International Business and Finance, Elsevier, vol. 22(3), pages 301-318, September.
- Allen N. Berger & Robert DeYoung & Hesna Genay & Gregory F. Udell, 2000.
"Globalization of financial institutions: evidence from cross-border banking performance,"
Finance and Economics Discussion Series
2000-04, Board of Governors of the Federal Reserve System (U.S.).
- Allen N. Berger & Robert DeYoung & Hesna Genay & Gregory F. Udell, 1999. "Globalization of financial institutions: evidence from cross-border banking performance," Working Paper Series WP-99-25, Federal Reserve Bank of Chicago.
- White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
- Isik, Ihsan & Hassan, M. Kabir, 2002. "Technical, scale and allocative efficiencies of Turkish banking industry," Journal of Banking & Finance, Elsevier, vol. 26(4), pages 719-766, April.
- Saxonhouse, Gary R, 1976. "Estimated Parameters as Dependent Variables," American Economic Review, American Economic Association, vol. 66(1), pages 178-83, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jade Turvey).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.