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Efficiency and Foreign Ownership in Banking: An International Comparison

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Author Info

  • Adnan Kasman

    ()
    (Department of Economics, Faculty of Business, Dokuz Eylül University)

  • Saadet Kirbas Kasman

    ()
    (Department of Economics, Faculty of Business, Dokuz Eylül University)

  • Oscar Carvallo

    ()
    (Venezuelan Banking Association)

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    Abstract

    This paper estimates cost and profit efficiency for Latin American and the Caribbean banking sectors. This study also conducts a comparative analysis of the performance of foreign and domestic banks operating in these counties. Using a model proposed by Battese and Coelli (1995), a common cost and profit frontiers with country-specific environmental variables have been estimated for a panel of 427 banking firms from sixteen countries. The empirical analysis reveals the importance of the environmental variables in explaining the efficiency differences among countries. The results show that profit efficiency levels are well below those corresponding to cost efficiency, implying that the most important inefficiency is on the revenue side. The results further indicate that on average foreign banks are more efficient than domestic banks.

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    File URL: http://www.deu.edu.tr/UploadedFiles/Birimler/12741/05_03.pdf
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    Bibliographic Info

    Paper provided by Dokuz Eylül University, Faculty of Business, Department of Economics in its series Discussion Paper Series with number 05/03.

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    Length: 37 pages
    Date of creation: 23 Nov 2005
    Date of revision: 23 Nov 2005
    Handle: RePEc:deu:dpaper:0503

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    Web page: http://www.deu.edu.tr/DEUWeb/Icerik/Icerik.php?KOD=442
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    Keywords: Banking; efficiency; foreign ownership;

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    References

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    1. Allen N. Berger & Loretta J. Mester, 1997. "Inside the black box: what explains differences in the efficiencies of financial institutions?," Working Papers 97-1, Federal Reserve Bank of Philadelphia.
    2. Dietsch, Michel & Lozano-Vivas, Ana, 2000. "How the environment determines banking efficiency: A comparison between French and Spanish industries," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 985-1004, June.
    3. Allen N. Berger & David B. Humphrey, 1997. "Efficiency of Financial Institutions: International Survey and Directions for Future Research," Center for Financial Institutions Working Papers 97-05, Wharton School Center for Financial Institutions, University of Pennsylvania.
    4. Sealey, Calvin W, Jr & Lindley, James T, 1977. "Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions," Journal of Finance, American Finance Association, vol. 32(4), pages 1251-66, September.
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    6. Vivas, Ana Lozano, 1997. "Profit efficiency for Spanish savings banks," European Journal of Operational Research, Elsevier, vol. 98(2), pages 381-394, April.
    7. Allen N. Berger & Robert DeYoung & Hesna Genay & Gregory F. Udell, 2000. "Globalization of financial institutions: evidence from cross-border banking performance," Finance and Economics Discussion Series 2000-04, Board of Governors of the Federal Reserve System (U.S.).
    8. Battese, George E. & Corra, Greg S., 1977. "Estimation Of A Production Frontier Model: With Application To The Pastoral Zone Of Eastern Australia," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 21(03), December.
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    15. Mester, Loretta J., 1996. "A study of bank efficiency taking into account risk-preferences," Journal of Banking & Finance, Elsevier, vol. 20(6), pages 1025-1045, July.
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    20. Rogers, Kevin E., 1998. "Nontraditional activities and the efficiency of US commercial banks," Journal of Banking & Finance, Elsevier, vol. 22(4), pages 467-482, May.
    21. Berger, Allen N. & Hunter, William C. & Timme, Stephen G., 1993. "The efficiency of financial institutions: A review and preview of research past, present and future," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 221-249, April.
    22. Laurent Weill, 2003. "Banking efficiency in transition economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(3), pages 569-592, 09.
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    Cited by:
    1. Mohamed Ariff & Luc Can, 2009. "IMF Bank-Restructuring Efficiency Outcomes: Evidence from East Asia," Journal of Financial Services Research, Springer, vol. 35(2), pages 167-187, April.

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