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Do banking crises enhance efficiency ? A case study of 1994 Turkish and 1997 Indonesian crises

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  • Julien Reynaud

    () (TEAM)

  • Rofikoh Rokhim

Abstract

Drawing together the concepts of inefficiency and banking crisis is directly inspired by business cycles theory where a crisis is the turning point from which the market/economy is recovering. If inefficiency plays a role in the occurrence of banking crisis, the post-crisis period should be the time for recovering efficiency. Moreover, traditional banking theory predicts that the crisis should eliminate bad banks from the system, leading to a more efficient banking sector. We tested this hypothesis on the 1994 Turkish and 1997 Indonesian banking crises using stochastic cost frontier analysis. Our results show an interesting pattern, opposed to what theory predicts : we find that inefficiency increase after the crises in both banking sectors.

Suggested Citation

  • Julien Reynaud & Rofikoh Rokhim, 2005. "Do banking crises enhance efficiency ? A case study of 1994 Turkish and 1997 Indonesian crises," Cahiers de la Maison des Sciences Economiques bla05007, Université Panthéon-Sorbonne (Paris 1).
  • Handle: RePEc:mse:wpsorb:bla05007
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    References listed on IDEAS

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    More about this item

    Keywords

    Banking crisis; efficiency; Indonesia; Turkey.;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • 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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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