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Bank Efficiency amid Foreign Entry; Evidence from the Central American Region

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  • Torsten Wezel

Abstract

This paper investigates the efficiency of domestic and foreign banks in the Central American region during 2002-07. Using two main empirical approaches, Data Envelopment Analysis and Stochastic Frontier Analysis, the paper finds that foreign banks are not necessarily more efficient than their domestic counterparts. If anything, the regional banks that were acquired by global banks in a wave of acquisitions during 2005-07 can keep up with the local institutions. The efficiency of these acquired banks, however, is shown to have dropped during the acquisition year, recovering only slightly thereafter. Finally, it is important to account for the environment in which banks operate, as country-, sector- and firm-specific characteristics are found to have a considerable influence on bank efficiency.

Suggested Citation

  • Torsten Wezel, 2010. "Bank Efficiency amid Foreign Entry; Evidence from the Central American Region," IMF Working Papers 10/95, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:10/95
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    Cited by:

    1. Stefano Caiazza & Alberto Franco Pozzolo & Giovanni Trovato, 2016. "Bank efficiency measures, M&A decision and heterogeneity," Journal of Productivity Analysis, Springer, vol. 46(1), pages 25-41, August.
    2. George Anayiotos & Hovhannes Toroyan & Athanasios Vamvakidis, 2010. "The efficiency of emerging Europe’s banking sector before and after the recent economic crisis," Financial Theory and Practice, Institute of Public Finance, vol. 34(3), pages 247-267.
    3. repec:eee:asieco:v:53:y:2017:i:c:p:18-36 is not listed on IDEAS
    4. Edward Gardener & Philip Molyneux & Hoai Nguyen-Linh, 2010. "Determinants of efficiency in South East Asian banking," The Service Industries Journal, Taylor & Francis Journals, vol. 31(16), pages 2693-2719, July.

    More about this item

    Keywords

    Central America; Total factor productivity; Bank efficiency; data envelopment analysis; stochastic frontier analysis; banking; foreign banks; domestic banks; foreign bank; bank entry;

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