Does the Institutional Quality of Countries Matter For Foreign Banks’ Efficiency? Empirical Evidence from Maghreb Countries

The present paper examines whether the home and host countries’ institutional quality explains the efficiency differences between the domestic and foreign banks operating in developing countries. The findings indicate a positive effect of foreign ownership on bank efficiency. More specifically, the efficiency differences, between domestic and foreign banks, do not depend on the host country’s institutional quality. However, the home country’s institutional quality improves the foreign banks’ efficiency remarkably. In order to test the robustness of our findings, dynamic panel data models have been administered. The results are convergent and the GMM estimator outlines a strong persistence of banks’ inefficiency.