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Cost and profit efficiency of french commercial banks

  • Béjaoui Rouissi, Raoudha
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    The purpose is to investigate the efficiency levels of commercial domestic versus foreign banks in France by comparing the use of basic accounting ratios and the stochastic cost and profit frontier analysis (SFA). We analyze the profit and cost efficiency of domestic and foreign banks operating in France using unbalanced sample, including 62 domestic and 40 foreign banks over the period 2000-2007. We show that foreign banks exhibit higher cost and profit efficiency than domestic banks. This finding goes against previous empirical literature, concluding on advantage of cost efficiency for domestic banks in developed countries such as France (Berger et al. (2000)). However, the comparison between the cost efficiency and the profit efficiency scores, suggests that foreign banks are better managed in terms of profit efficiency mainly due to higher cost efficiency. On the other side, profit efficiency of domestic banks, was due to higher revenue efficiency. This suggests that French domestic banks operate with excessive margins.

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    Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 34245.

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    Date of creation: 27 Oct 2011
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    Handle: RePEc:pra:mprapa:34245
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    1. Francisco Pérez García & Javier Quesada Ibañez & José Manuel Pastor Monsálvez, 1995. "Efficiency Analysis In Banking Firms: An International Comparison," Working Papers. Serie EC 1995-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
    2. Mohamed E. & Michel Dietsch, 1999. "Mesures de l'efficience technique et de l'efficience allocative par les fonctions de distance et application aux banques européennes," Revue économique, Presses de Sciences-Po, vol. 0(3), pages 633-644.
    3. Mohamed Chaffai & Michel Dietsch & Ana Lozano-Vivas, 2001. "Technological and Environmental Differences in the European Banking Industries," Journal of Financial Services Research, Springer, vol. 19(2), pages 147-162, April.
    4. Laurent Weill, 2006. "Propriété étrangère et efficience technique des banques dans les pays en transition. Une analyse par la méthode dea," Revue économique, Presses de Sciences-Po, vol. 57(5), pages 1093-1108.
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    6. J. Maudos & J. M. Pastor, 2003. "Cost and profit efficiency in the Spanish banking sector (1985-1996): a non-parametric approach," Applied Financial Economics, Taylor & Francis Journals, vol. 13(1), pages 1-12.
    7. Ariff, Mohamed & Can, Luc, 2008. "Cost and profit efficiency of Chinese banks: A non-parametric analysis," China Economic Review, Elsevier, vol. 19(2), pages 260-273, June.
    8. Drake, Leigh & Hall, Maximilian J. B., 2003. "Efficiency in Japanese banking: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 27(5), pages 891-917, May.
    9. Altunbas, Y. & Gardener, E. P. M. & Molyneux, P. & Moore, B., 2001. "Efficiency in European banking," European Economic Review, Elsevier, vol. 45(10), pages 1931-1955, December.
    10. Delis, Manthos D & Koutsomanoli-Filippaki, Anastasia & Staikouras, Christos & Gerogiannaki, Katerina, 2008. "Evaluating cost and profit efficiency: a comparison of parametric and nonparametric methodologies," MPRA Paper 14039, University Library of Munich, Germany.
    11. Lensink, Robert & Meesters, Aljar & Naaborg, Ilko, 2008. "Bank efficiency and foreign ownership: Do good institutions matter?," Journal of Banking & Finance, Elsevier, vol. 32(5), pages 834-844, May.
    12. Havrylchyk, Olena, 2006. "Efficiency of the Polish banking industry: Foreign versus domestic banks," Journal of Banking & Finance, Elsevier, vol. 30(7), pages 1975-1996, July.
    13. Berger, Allen N. & Hasan, Iftekhar & Zhou, Mingming, 2009. "Bank ownership and efficiency in China: What will happen in the world's largest nation?," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 113-130, January.
    14. Isik, Ihsan & Hassan, M. Kabir, 2002. "Technical, scale and allocative efficiencies of Turkish banking industry," Journal of Banking & Finance, Elsevier, vol. 26(4), pages 719-766, April.
    15. 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.
    16. Pasiouras, Fotios, 2008. "Estimating the technical and scale efficiency of Greek commercial banks: The impact of credit risk, off-balance sheet activities, and international operations," Research in International Business and Finance, Elsevier, vol. 22(3), pages 301-318, September.
    17. Michel Dietsch & Ana Lozano Vivas, . "How the Environment Determines the Efficiency of Banks: A Comparison between French and Spanish Banking Industry," Center for Financial Institutions Working Papers 97-29, Wharton School Center for Financial Institutions, University of Pennsylvania.
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