Bad Luck or Bad Management? Emerging Banking Market Experience
A large number of bank failures occurred in transition countries during the 1990s and at the beginning of the 2000s. These failures were related to increases in non-performing loans and deteriorated cost efficiency of banks. This paper addresses the question of the causality between non-performing loans and cost efficiency in order to examine whether either of these factors is the deep determinant of bank failures. We extend the Granger causality model developed by Berger and DeYoung (1997) by applying GMM dynamic panel estimators on a panel of Czech banks between 1994 and 2005. Our findings support the â€œbad managementâ€ hypothesis, according to which deteriorations in cost efficiency precede increases in non-performing loans, and reject the â€œbad luckâ€ hypothesis, which predicts the reverse causality.
|Date of creation:||Dec 2007|
|Date of revision:|
|Contact details of provider:|| Postal: Na Prikope 28, 115 03 Prague 1|
Phone: 00420 2 2442 1111
Fax: 00420 2 2421 8522
Web page: http://www.cnb.cz/en/research/research_intro/
More information through EDIRC
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.:
- Arellano, Manuel & Bover, Olympia, 1995.
"Another look at the instrumental variable estimation of error-components models,"
Journal of Econometrics,
Elsevier, vol. 68(1), pages 29-51, July.
- M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
- Allen Berger & John Leusner & John Mingo, 1994.
"The Efficiency of Bank Branches,"
Center for Financial Institutions Working Papers
94-27, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Bonin, John P. & Hasan, Iftekhar & Wachtel, Paul, 2004.
"Bank performance, efficiency and ownership in transition countries,"
BOFIT Discussion Papers
7/2004, Bank of Finland, Institute for Economies in Transition.
- Bonin, John P. & Hasan, Iftekhar & Wachtel, Paul, 2005. "Bank performance, efficiency and ownership in transition countries," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 31-53, January.
- Richard S. BARR & Lawrence M. SEIFORD & Thomas F. SIEMS, 1994. "Forecasting Bank Failure : A Non-Parametric Frontier Estimation Approach," Discussion Papers (REL - Recherches Economiques de Louvain) 1994041, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
- Williams, Jonathan, 2004. "Determining management behaviour in European banking," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2427-2460, October.
- Anca Podpiera & Jiri Podpiera, 2005. "Deteriorating Cost Efficiency in Commercial Banks Signals an Increasing Risk of Failure," Working Papers 2005/06, Czech National Bank, Research Department.
- Allen N. Berger & Robert DeYoung, 1997.
"Problem loans and cost efficiency in commercial banks,"
Finance and Economics Discussion Series
1997-8, Board of Governors of the Federal Reserve System (U.S.).
- Berger, Allen N. & DeYoung, Robert, 1997. "Problem loans and cost efficiency in commercial banks," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 849-870, June.
- Allen N. Berger & Robert DeYoung, 1995. "Problem Loans and Cost Efficiency in Commercial Banks," Center for Financial Institutions Working Papers 96-01, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Laurent Weill, 2003. "Banking efficiency in transition economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 11(3), pages 569-592, 09.
- David C. Wheelock & Paul W. Wilson, 1995. "Evaluating the efficiency of commercial banks: does our view of what banks do matter?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 39-52.
- Manuel Arellano & Stephen Bond, 1991.
"Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations,"
Review of Economic Studies,
Oxford University Press, vol. 58(2), pages 277-297.
- Tom Doan, . "RATS program to replicate Arellano-Bond 1991 dynamic panel," Statistical Software Components RTZ00169, Boston College Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:cnb:wpaper:2007/5. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jan Babecky)
If references are entirely missing, you can add them using this form.