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Effect of Foreign Shareholdings and Originating Countries on Banking Sector Efficiency

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  • Sok-Gee Chan
  • Eric H. Y. Koh
  • Yong-Cheol Kim

Abstract

We analyze how foreign shareholdings affect the ASEAN-5’s banking sector efficiency using stochastic frontier analysis. Unlike most extant studies, which compare the performance of local and foreign banks, we assess how foreign shareholdings affect bank efficiencies. We also apply resource-based theory to analyze whether the foreign shareholdings’ countries of origin matter. We find that foreign shareholders from more developed countries enhance the bank’s resource base. Those from Asia have the greatest effect, perhaps because of their proximity and familiarity. Moreover, excessive regulation stifles the host countries’ profit efficiency potential. Finally, foreign shareholding concentration potentially enhances efficiencies by reducing agency costs.

Suggested Citation

  • Sok-Gee Chan & Eric H. Y. Koh & Yong-Cheol Kim, 2016. "Effect of Foreign Shareholdings and Originating Countries on Banking Sector Efficiency," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(9), pages 2018-2042, September.
    • Handle: RePEc:mes:emfitr:v:52:y:2016:i:9:p:2018-2042
    DOI: 10.1080/1540496X.2016.1142231
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    Cited by:

    1. Khan, Habib Hussain & Kutan, Ali M. & Naz, Iram & Qureshi, Fiza, 2017. "Efficiency, growth and market power in the banking industry: New approach to efficient structure hypothesis," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 531-545.
    2. Xiaohui Yuan & Jiayan Yan, 2022. "Reverse Efficiency Spillovers from Host Country Banks to Foreign Banks: Evidence from Emerging Market Bank Subsidiaries in Developed Markets," Management International Review, Springer, vol. 62(6), pages 915-946, December.

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