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Do better institutions improve bank efficiency? Evidence from a transitional economy

Author

Listed:
  • Iftekhar Hasan
  • Haizhi Wang
  • Mingming Zhou

Abstract

Purpose - The purpose of this paper is to investigate the role of institutional developments – market economy, financial deepening, private sector, property rights and rule of law – affecting the bank efficiency in China. Design/methodology/approach - First, profit efficiency and cost efficiency scores of banks at the firm-year level were estimated using a stochastic efficiency frontier approach. Then the results were aggregated at the regional level. Regional differences in the timing and extent of the institutional developments impacting bank efficiency were exploited. Findings - It was observed that most institutional variables play an important role in affecting bank efficiency and additionally banks tend to operate more efficiently in those regions with greater presence of private sector and more property rights awareness. Research limitations/implications - The data on a number of important institutional variables such as property rights and rule of law are not easily available or importantly do not vary that much across years. However, based on whatever information available, it is apparent that institutional development is crucial to bank performance and also eventual economic growth. Originality/value - This paper is believed to be the first attempt to empirically examine the role of institutional factor affecting bank efficiency especially in a transition country.

Suggested Citation

  • Iftekhar Hasan & Haizhi Wang & Mingming Zhou, 2009. "Do better institutions improve bank efficiency? Evidence from a transitional economy," Managerial Finance, Emerald Group Publishing, vol. 35(2), pages 107-127, January.
  • Handle: RePEc:eme:mfipps:v:35:y:2009:i:2:p:107-127
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    Citations

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    Cited by:

    1. Kalyvas, Antonios Nikolaos & Mamatzakis, Emmanuel, 2014. "Does business regulation matter for banks in the European Union?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 278-324.
    2. Iftekhar Hasan & Nada Kobeissi & Haizhi Wang & Mingming Zhou, 2015. "Banking Structure, Marketization, and Small Business Development: Regional Evidence From China," Pacific Economic Review, Wiley Blackwell, vol. 20(3), pages 487-510, August.
    3. Zhang, Jianhua & Wang, Peng & Qu, Baozhi, 2012. "Bank risk taking, efficiency, and law enforcement: Evidence from Chinese city commercial banks," China Economic Review, Elsevier, vol. 23(2), pages 284-295.
    4. Anastasia Koutsomanoli-Filippaki & Emmanuel Mamatzakis, 2013. "How labour market regulation shapes bank performance in EU-15 countries?," Working Papers 162, Bank of Greece.
    5. Xiaotian Tina Zhang & Yong Wang, 2014. "Production efficiency of Chinese banks: a revisit," Managerial Finance, Emerald Group Publishing, vol. 40(10), pages 969-986, October.
    6. repec:taf:raaexx:v:19:y:2012:i:2:p:181-197 is not listed on IDEAS
    7. repec:bof:bofitp:urn:nbn:fi:bof-201504131154 is not listed on IDEAS
    8. repec:bla:ecnote:v:46:y:2017:i:3:p:649-676 is not listed on IDEAS

    More about this item

    Keywords

    Organizational development; Banks; China;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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