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The Impact of Bank Governance on Bank Performance in Pakistan

Author

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  • Abid A. Burki

    (Department of Economics, Lahore University of Management Sciences.)

  • Shabbir Ahmad

    (Department of Economics, University of Queensland, Brisbane, Australia.)

Abstract

This study attempts to investigate the impact of changes in bank governance on bank performance in Pakistan. Governance changes entail the privatization and restructuring of state-owned banks, and the merger and acquisition of private and foreign banks. Using the concept of frontier efficiency, we adopt an empirical framework that allows us to study the impact of all governance reform variables in the same model. First, we estimate a stochastic cost frontier model using unbalanced panel data on commercial banks for the period 1991–2005. Second, we decompose banks’ total factor productivity (TFP) change into its different components, using the estimated frontier. In general, the results show an improvement in banks’ cost efficiency following changes in bank governance. We note that governance changes bring about an improvement in banks’ TFP vis-à-vis that of banks that did not undergo governance changes. We find a declining trend in TFP change (TFPC), which could be a consequence of the banking industry’s increased profitability. We also note that bank selection for governance changes has a mixed effect on TFPC, while bank consolidation seems to be more effective in improving TFPC.

Suggested Citation

  • Abid A. Burki & Shabbir Ahmad, 2011. "The Impact of Bank Governance on Bank Performance in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 16(Special E), pages 271-300, September.
    • Handle: RePEc:lje:journl:v:16:y:2011:i:sp:p:271-300
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    References listed on IDEAS

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    Cited by:

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    2. Asma Mghaieth & Imen Khanchel El Mehdi, 2014. "The determinants of cost/profit efficiency of Islamic banks before, during and after the crisis of 2007," Working Papers 2014-107, Department of Research, Ipag Business School.
    3. Chu V. Nguyen, & Muhammad Mahboob Ali, & Alexandru Mircea Nedelea, 2017. "The Behaviors Of Lending, Deposit Rates And Intermediation Premium Of Pakistani Banks With Different Types Of Ownership Structures," EcoForum, "Stefan cel Mare" University of Suceava, Romania, Faculty of Economics and Public Administration - Economy, Business Administration and Tourism Department., vol. 6(1), pages 1-49, January.

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    More about this item

    Keywords

    Bank Reform; Total Factor Productivity; Stochastic Frontier Model; Pakistan.;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • J54 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Producer Cooperatives; Labor Managed Firms

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