Bad Luck or Bad Management? Emerging Banking Market Experience
AbstractA large number of bank failures occurred in transition countries during the 1990s and at the beginning of the 2000s. These failures were related to increases in non-performing loans and deteriorated cost efficiency of banks. This paper addresses the question of the causality between non-performing loans and cost efficiency in order to examine whether either of these factors is the deep determinant of bank failures. We extend the Granger causality model developed by Berger and DeYoung (1997) by applying GMM dynamic panel estimators on a panel of Czech banks between 1994 and 2005. Our findings support the â€œbad managementâ€ hypothesis, according to which deteriorations in cost efficiency precede increases in non-performing loans, and reject the â€œbad luckâ€ hypothesis, which predicts the reverse causality.
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Bibliographic InfoPaper provided by Czech National Bank, Research Department in its series Working Papers with number 2007/5.
Date of creation: Dec 2007
Date of revision:
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Bank failures; cost efficiency; non-performing loans; transition countries.;
Other versions of this item:
- Podpiera, Jiri & Weill, Laurent, 2008. "Bad luck or bad management? Emerging banking market experience," Journal of Financial Stability, Elsevier, vol. 4(2), pages 135-148, June.
- Jirí Podpiera & Laurent Weill, 2008. "Bad luck or bad management? emerging banking market experience," ULB Institutional Repository 2013/14305, ULB -- Universite Libre de Bruxelles.
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-12 (All new papers)
- NEP-BAN-2008-04-12 (Banking)
- NEP-EFF-2008-04-12 (Efficiency & Productivity)
- NEP-TRA-2008-04-12 (Transition Economics)
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