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Foreign bank diversification and efficiency prior to and during the financial crisis: Does one business model fit all?

Author

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  • Claudia Curi

    (Free University of Bolzano - Bozen, School of Economics and Management)

  • Ana Lozano-Vivas

    (University of Malaga)

  • Valentin Zelenyuk

    (School of Economics and Centre for Efficiency and Productivity Analysis, the University of Queensland)

Abstract

Diversified and focused business models may affect foreign bank efficiency differently in branches or subsidiaries. We investigate whether there is a unique optimal business model in three dimensions: assets, funding and income. We apply recently developed bootstrap methods to estimate group efficiency separately for diversified and focused banks and to test for differences across groups. We further analyze the link between bank efficiency and bank-specific characteristics including diversification measures. Using Luxembourg bank data that includes the financial crisis, we find there is no unique business model as diversified and focused foreign banks coexist and compete in all three dimensions. The most efficient business model appears to be diversified with regard to assets and focused with respect to funding and income. Over time, we find a shift to more focused assets and funding but not income.

Suggested Citation

  • Claudia Curi & Ana Lozano-Vivas & Valentin Zelenyuk, 2014. "Foreign bank diversification and efficiency prior to and during the financial crisis: Does one business model fit all?," BEMPS - Bozen Economics & Management Paper Series BEMPS18, Faculty of Economics and Management at the Free University of Bozen.
    • Handle: RePEc:bzn:wpaper:bemps18
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    More about this item

    Keywords

    foreign banks; asset funding and income diversification; financial crisis; DEA group-efficiency; heterogeneous bootstrap;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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