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What Determines Differences in Foreign Bank Efficiency? Australian Evidence

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  • Jan-Egbert Sturm
  • Barry Williams

Abstract

This study applies parametric distance functions to estimate the efficiency of foreign banks in Australia, and subsequently employs extreme bounds analysis to establish the determinants of foreign bank efficiency that are robust to model specification. The limited global advantage hypothesis of Berger et al (2000) is supported. Following clients is found to reduce the efficiency of the profit-creation process. The market share of the incumbent banks acts as a barrier to entry to efficiency in the retail market, with acquisition of a domestic bank reducing this effect. Internet-based bank product delivery reduces the efficiency of profit creation in the initial phases of operation, and parent profits do not improve efficiency in the host market.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1587.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1587

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Keywords: foreign bank efficiency; distance functions; extreme bounds analysis; barriers to entry; following clients;

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References

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Citations

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Cited by:
  1. Jan-Egbert Sturm & Barry Williams, 2005. "What Determines Differences in Foreign Bank Efficiency? Australian Evidence," CESifo Working Paper Series 1587, CESifo Group Munich.
  2. Claudia Curi & Paolo Guarda & Ana Lozano-Vivas & Valentin Zelenyuk, 2011. "Is foreign-bank efficiency in financial centers driven by homecountry characteristics?," BCL working papers 68, Central Bank of Luxembourg.
  3. Cândida Ferreira, 2011. "European integration and banking efficiency: a panel cost frontier approach," Working Papers Department of Economics, ISEG - School of Economics and Management, Department of Economics, University of Lisbon 2011/04, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  4. 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.
  5. 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.
  6. 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.
  7. Aiello, Francesco & Bonanno, Graziella, 2014. "On the Sources of Heterogeneity in Banking Efficiency Literature," MPRA Paper 58591, University Library of Munich, Germany.

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