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Privatization Matters: Bank Efficiency in Transition Countries

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Author Info
John P. Bonin ()
Iftekhar Hasan ()
Paul Wachtel ()
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 governmentowned 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-forservice 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 earlyprivatized banks are more efficient than later-privatized banks even though we find no evidence of a selection effect.

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Paper provided by William Davidson Institute at the University of Michigan Stephen M. Ross Business School in its series William Davidson Institute Working Papers Series with number 2004-679.

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Length: 32 pages
Date of creation: 01 Apr 2004
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Handle: RePEc:wdi:papers:2004-679

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Related research
Keywords: bank efficiency bank privatization strategic foreign owner transition countries

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Find related papers by JEL classification:
P30 - Economic Systems - - Socialist Institutions and Their Transitions - - - General
P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance
P52 - Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Steven Fries & Damien Neven & Paul Seabright, 2002. "Bank Performance in Transition Economies," William Davidson Institute Working Papers Series 505, William Davidson Institute at the University of Michigan Stephen M. Ross Business School. [Downloadable!]
  2. Clarke, George R. G. & Cull, Robert, 1999. "Why Privatize? The Case of Argentina's Public Provincial Banks," World Development, Elsevier, vol. 27(5), pages 865-886, May. [Downloadable!] (restricted)
    Other versions:
  3. Ewa M. Nikiel & Timothy P. Opiela, 2002. "Customer Type and Bank Efficiency in Poland: Implications for Emerging Market Banking," Contemporary Economic Policy, Oxford University Press, vol. 20(3), pages 255-271, July.
  4. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002. "Government Ownership of Banks," Journal of Finance, American Finance Association, vol. 57(1), pages 265-301, 02. [Downloadable!] (restricted)
    Other versions:
  5. 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. [Downloadable!] (restricted)
  6. 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.). [Downloadable!]
    Other versions:
  7. Damien Neven, 2002. "Bank Performance in Transition Economies," HEI Working Papers 07-2002, Economics Section, The Graduate Institute of International Studies. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Maria Soledad Martinez Peria & Andrew Powell & Ivanna Vladkova-Hollar, 2005. "Banking on Foreigners: The Behavior of International Bank Claims on Latin America, 1985–2000," IMF Staff Papers, Palgrave Macmillan Journals, vol. 52(3), pages 4. [Downloadable!] (restricted)
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