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Privatization matters: Bank efficiency in transition countries

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  • Bonin, John P.

    ()
    (Wesleyan University)

  • Hasan, Iftekhar

    ()
    (Rensselaer Polytechnic Institute, Troy)

  • Wachtel, Paul

    ()
    (Stern School of Business New York University)

Abstract

To investigate the impact of bank privatization in transition countries, we take the largest banks in six relatively advanced countries, namely, Bulgaria, the Czech Republic, Croatia, Hungary, Poland and Romania. Income and balance sheet characteristics are compared across four bank ownership types. Efficiency measures are computed from stochastic frontiers and used in ownership and privatization regressions having dummy variables for bank type. Our empirical results support the hypotheses that foreign-owned banks are most efficient and government-owned banks are least efficient. In addition, the importance of attracting a strategic foreign owner in the privatization process is confirmed. However, counter to the conjecture that foreign banks cream skim, we find that domestic banks have a local advantage in pursuing fee-for-service business. Finally, we show that both the method and the timing of privatization matter to efficiency; specifically, voucher privatization does not lead to increased efficiency and early-privatized banks are more efficient than later-privatized banks even though we find no evidence of a selection effect.

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File URL: http://www.suomenpankki.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/Documents/dp0804.pdf
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Bibliographic Info

Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 8/2004.

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Length: 39 pages
Date of creation: 10 Jun 2004
Date of revision:
Publication status: Published in Journal of Banking and Finance, 2005, pages 2155-78.
Handle: RePEc:hhs:bofitp:2004_008

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Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
Phone: + 358 10 831 2268
Fax: + 358 10 831 2294
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Web page: http://www.suomenpankki.fi/bofit_en/
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  1. Rafael La Porta & Florencio Lopezde-Silanes & Andrei Shleifer, 2000. "Government Ownership of Banks," NBER Working Papers 7620, National Bureau of Economic Research, Inc.
  2. Steven Fries & Damien Neven & Paul Seabright, 2002. "Bank performance in transition economies," Working Papers 76, European Bank for Reconstruction and Development, Office of the Chief Economist.
  3. Allen N. Berger & Robert DeYoung & Hesna Genay & Gregory F. Udell, 1999. "Globalization of financial institutions: evidence from cross-border banking performance," Working Paper Series, Federal Reserve Bank of Chicago WP-99-25, Federal Reserve Bank of Chicago.
  4. Fries, Steven & Taci, Anita, 2005. "Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 55-81, January.
  5. Clarke, George R. & Cull, Robert, 1998. "Why privatize? : the case of Argentina's public provincial banks," Policy Research Working Paper Series 1972, The World Bank.
  6. Claessens, Stijn & Demirguc-Kunt, Asl[iota] & Huizinga, Harry, 2001. "How does foreign entry affect domestic banking markets?," Journal of Banking & Finance, Elsevier, vol. 25(5), pages 891-911, May.
  7. Bonin, John P. & Hasan, Iftekhar & Wachtel, Paul, 2004. "Bank performance, efficiency and ownership in transitition countries," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 7/2004, Bank of Finland, Institute for Economies in Transition.
  8. Jennifer S. Crystal & B. Gerard Dages & Linda S. Goldberg, 2001. "Does foreign ownership contribute to sounder banks in emerging markets? the Latin American experience," Staff Reports 137, Federal Reserve Bank of New York.
  9. Bonin, John & Wachtel, Paul, 2004. "Dealing with financial fragility in transition economies," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 22/2004, Bank of Finland, Institute for Economies in Transition.
  10. Ewa M. Nikiel & Timothy P. Opiela, 2002. "Customer Type And Bank Efficiency In Poland: Implications For Emerging Market Banking," Contemporary Economic Policy, Western Economic Association International, vol. 20(3), pages 255-271, 07.
  11. Abarbanell, Jeffery S. & Bonin, John P., 1997. "Bank Privatization in Poland: The Case of Bank Slaski," Journal of Comparative Economics, Elsevier, vol. 25(1), pages 31-61, August.
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