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Decomposing global bank productivity growth: the role of non-performing loans, equity and technology

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  • Emmanuel Mamatzakis

    (University of Sussex Business School, University of Sussex, UK; Rimini Centre for Economic Analysis)

  • M. Tsionas

    (Lancaster University Management School, UK)

Abstract

We propose a flexible functional form for estimating production performance that allows for endogeneity of the underlying inputs and outputs. The proposed model opts for a novel local likelihood estimation method that adequately deals with issues of endogeneity, whilst accounts for non-parametric heteroskedasticity in the covariance matrix of the error term. We argue that bank productivity as provided by our model based on bank micro-foundations is better suited to measure bank performance compared to efficiency. In the empirical section, we show the destructive effect of nonperforming loans on bank-specific TFP growth in advanced, emerging and developing economies. Technology, though, appears to positively contribute to bank TFP growth across the world. Furthermore, we show that bank risk-taking and raising capital by equity are negatively related to TFP growth, while liquidity has a positive impact.

Suggested Citation

  • Emmanuel Mamatzakis & M. Tsionas, 2018. "Decomposing global bank productivity growth: the role of non-performing loans, equity and technology," Working Paper series 18-41, Rimini Centre for Economic Analysis.
  • Handle: RePEc:rim:rimwps:18-41
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    More about this item

    Keywords

    banking; productivity growth; local likelihood function; global banking;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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