Cost and profit efficiency of french commercial banks

The purpose is to investigate the efficiency levels of commercial domestic versus foreign banks in France by comparing the use of basic accounting ratios and the stochastic cost and profit frontier analysis (SFA). We analyze the profit and cost efficiency of domestic and foreign banks operating in France using unbalanced sample, including 62 domestic and 40 foreign banks over the period 2000-2007. We show that foreign banks exhibit higher cost and profit efficiency than domestic banks. This finding goes against previous empirical literature, concluding on advantage of cost efficiency for domestic banks in developed countries such as France (Berger et al. (2000)). However, the comparison between the cost efficiency and the profit efficiency scores, suggests that foreign banks are better managed in terms of profit efficiency mainly due to higher cost efficiency. On the other side, profit efficiency of domestic banks, was due to higher revenue efficiency. This suggests that French domestic banks operate with excessive margins.