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The Impact of Bank Governance on Bank Performance in Pakistan

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Author Info

  • Abid A. Burki

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

  • Shabbir Ahmad

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

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    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.

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    Bibliographic Info

    Article provided by Department of Economics, The Lahore School of Economics in its journal Lahore Journal of Economics.

    Volume (Year): 16 (2011)
    Issue (Month): Special Edition (September)
    Pages: 271-300

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    Handle: RePEc:lje:journl:v:16:y:2011:i:sp:p:271-300

    Contact details of provider:
    Postal: Intersection Main Boulevard Phase VI DHA and Burki Road, Lahore
    Phone: (92-42) 6560939
    Web page: http://www.lahoreschoolofeconomics.edu.pk/EconomicsJournal/LJEIntro.aspx
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    Related research

    Keywords: Bank Reform; Total Factor Productivity; Stochastic Frontier Model; Pakistan.;

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    References

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    20. Burki, Abid A. & Ahmad, Shabbir, 2010. "Bank governance changes in Pakistan: Is there a performance effect?," Journal of Economics and Business, Elsevier, vol. 62(2), pages 129-146, March.
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    Cited by:
    1. Asma Mghaieth & Imen Khanchel El Mehdi, 2014. "The determinants of cost/profit efficiency of Islamic banks before, during and after the crisis of 2007-2008 using SFA approach," Working Papers 2014-107, Department of Research, Ipag Business School.

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