Academic literature on the topic 'Financial deregulation policies; bank efficiency; data envelopment analysis'

Purpose – The purpose of this paper is to examine the trends of cost efficiency (CE) of Indian banks in response to financial deregulation programme launched in early 1990s. More specifically, the findings of this paper offer empirical testing of the basic underlined hypothesis that the CE of banks will rise in the more liberal and competitive environment. Design/methodology/approach – The study employs input-oriented data envelopment analysis (DEA) models that incorporate the quasi-fixed inputs to compute the cost, technical, and allocative efficiency scores for individual banks. The unbalanced panel data spanning from the financial year 1992-1993 to 2007-2008 are used for obtaining efficiency measures. In addition, the panel data Tobit model has been applied to investigate the bank-specific factors explaining variations in the CE. Findings – The empirical findings pertaining to the trends of efficiency measures suggest that: first, deregulation programme has had a positive impact on the CE of Indian banks, and the observed increase in CE is entirely due to improvements in technical efficiency (TE); second, the ranking of ownership groups provides that public sector banks are more cost efficient along with the foreign than private banks; and third, there is a strong presence of global advantage hypothesis in the Indian banking industry. The results of post-DEA analysis reveal that size and exposure to off-balance sheet activities are the key determinants of CE. The results also support the existence of bad luck or bad management hypothesis in Indian banking industry. Practical implications – The practical implication of the research findings is that the financial deregulation programme seems to be successful in achieving the CE gains in the Indian banking industry. This explicitly signals that the cautious approach of banking reforms adopted by Indian policy makers has started bearing fruit in terms of the creation of an efficient banking system, which is immune to any sort of financial crisis, and resilient to both internal and external shocks. Originality/value – The present study offers new evidence on the time-series properties of cost, allocative, and TEs of Indian banks. The DEA models used in this study explicitly incorporate the equity as a quasi-fixed input, which accounts for “risk” in the bank efficiency measurement.

This paper provides a review of the approaches that have been used to evaluate the productivity and efficiency of the securities industry (financial ratios, econometric techniques, data envelopment analysis-DEA, and the estimation of stochastic frontiers). In undertaking this it identifies some of the organisational structure characteristics of securities companies that are associated with high levels of operational efficiency, particularly regarding the impact of regulation, the structure of ownership, and economies of scope and scale. The findings are that from the limited number of studies that have to date been undertaken it appears that the industry does have economies of scale, benefits from deregulation and performs better with foreign and bank ownership.

Using the non-parametric method of Data Envelopment Analysis (DEA) and the parametric method of Stochastic Frontier Approach (SPA), this study investigates the efficiency of the Islamic Banking recent operations in Indonesia over the period 2005 to 2007. In specifying input-output variables of Islamic banks, the intermediation approach is selected as it is in line with the principle of Islamic financial system. The attributions of technical efficiency (utilization of capacity) and scale efficiency (optimality of scale achieved) are identified. The principal findings for the period under study indicated that technical and scale efficiency scores are improving but 100 percent optimal during research period. According to SFA approach, closer to 100 percent means a bank acts efficiently. Overall, the result shows that Islamic banks suffer slight inefficiencies during the period 2005-2007, and tend to be increasing. The study has several important policy implications to offer, one of which is that it could be taken as a guideline for the Indonesian government to chart a policy on banking deregulation and mergers. Moreover, the study provides some information and identifies the sourceof inefficiency, vyhich could, in turn, be used to assist banks’ managements to overcome the problems of inefficiency.

Purpose This study aims to examine the impact of regulation and other micro- and macro-economic factors on banks’ productivity growth. It investigates the impact of different regulatory reforms on banks’ performance of total factor productivity (TFP) and its component efficiencies, along with their association with bank-specific variables of profitability and equity, and with macro-level variables of economy and freedom. That is, through analysing the influence of regulatory and supervisory policies related to Basel accords pillars of capital and market discipline through private monitoring; restrictions on bank activities; and economic and financial freedoms on TFP growth and year-end performance in banking. Design/methodology/approach The authors examine TFP for commercial banks in response to regulatory reforms on an international scale. To estimate the TFP, the authors use a non-parametric frontier technique by calculating the Malmquist output-oriented index, following Delis et al. (2011) and Worthington (1999). The components of the Malmquist index are ratios of distance functions making its estimation a straightforward technique using activity analysis or data envelopment analysis methods. This allows controlling for efficiency changes depending on the reallocation of production frontiers signalling the technical change and the technical efficiency at once. Findings Results show that high capital requirements enhance productivity growth in North and Latin American banks, but not in European African or Asian banks. Supervisory powers drive bank productivity growth in all regions except Europe and Central Asia. Restrictions on real estate, insurance and securities activities impede productivity change in all income level groups but not in high-income economies. The results also show that market volatility and Z-score drive technological change and scale efficiency growth, but negatively impact pure technical efficiency. Originality/value This paper contributes to the literature by examining the relationship between the implementation of regulatory standards and the performance of the banking sector following a structural model of the banking firm and the concept of optimisation. An additional contribution of this study is that it examines economies with different levels of income based on the gross national income per capita. The study summarises bank-specific data used to synthesise the banks’ productivity (inputs and outputs) and country-specific economic and regulatory compliance data over 19 years (1999-2017). The extent of this data set coverage makes it most recent and most conclusive of variables to provide a significant contribution to the literature on bank regulation and efficiency effect.

PurposeThe paper aims to enrich previous findings for an emerging banking industry such as Vietnam, reporting the difference between the parametric and nonparametric methods when measuring cost efficiency. The purpose of the study is to assess the consistency in issuing policies to improve the cost efficiency of Vietnamese commercial banks.Design/methodology/approachThe cost efficiency of banks is assessed through the data envelopment analysis (DEA) and the stochastic frontier analysis (SFA). Next, five tests are conducted in succession to analyze the differences in cost efficiency measured by these two methods, including the distribution, the rankings, the identification of the best and worst banks, the time consistency and the determinants of efficiency frontier. The data are collected from the annual financial statements of Vietnamese banks during 2005–2017.FindingsThe results show that the cost efficiency obtained under the SFA models is more consistent than under the DEA models. However, the DEA-based efficiency scores are more similar in ranking order and stability over time. The inconsistency in efficiency characteristics under two different methods reminds policy makers and bank administrators to compare and select the appropriate efficiency frontier measure for each stage and specific economic conditions.Originality/valueThis paper shows the need to control for heterogeneity over banking groups and time as well as for random noise and outliers when measuring the cost efficiency.

Purpose – Testing the efficiency in the economy has been highly pronounced since the financial crisis in 2008, as many countries have started to deregulate their economic sectors. The potential impact of testing efficiency is thus the key driver of world output and welfare. For this purpose, the main objective of the Capital Market Authority consists of more regulation of securities trading to boost economic efficiency. In particular, the purpose of this paper, is to examine the efficiency of 40 investment companies in Kuwait. In this study, the authors investigate the efficiency in the investment sector in Kuwait. Studying such a case is important for several reasons. First, the investment sector in Kuwait is affected by the World Trade Organization (WTO) conditions and regulations for more market liberalization. Second, most studies on efficiency have focussed on developed countries, such as those of Europe and the USA, with very few studies examining developing countries, such as Kuwait. Third, the study efficiency features is important in helping policy makers evaluate how the investment sector will be affected by increasing competition and then formulate policies that affect that sector and the economy as a whole. Design/methodology/approach – In this study, we use non-parametric data envelopment analysis (DEA) to estimate investment companies’ efficiency in Kuwait. The authors test predictions of the model using yearly data for 2006-2010. In the analysis, the authors follow the two-stage approach suggested by Coelli et al. (1998). In the literature on DEA efficiency score measurement, this two-stage approach is the most prominent. This approach uses the efficiency score, measured by the DEA model, as the dependent variable in a regression model with explanatory variables that are supposed to capture the impact of external factors (Hahn, 2007). In the second stage, the authors used a Tobit model to investigate factors affecting the efficiency in the Kuwaiti investment sector. Findings – The findings of the second stage suggest that 2008-2010 had a negative impact on firms’ efficiency in Kuwait. The results confirm the substantial influence of the 2008 global financial crisis on the investment sector in Kuwait. In addition, the results show that factors affecting production efficiency in the investment sector in Kuwait include the total revenues, total assets, government participation, and Islamic firm dummy. These second-stage results are confirmed using different specifications of a fixed effect model, a random effects model, and a logit model. Originality/value – The results may be utilized by both monetary authorities and policy makers in establishing the general economic policy in the country. A number of policy implications may be derived from the estimates obtained in the current paper. First, the results show that the investment sector in Kuwait faced a sharp drop in its efficiency in 2008 due to the global financial crisis. This result tells us that there was a spillover effect of the global financial crisis in the Kuwaiti investment market, as companies in this market are highly vulnerable to global shocks. As a result, the investment sector needs to be regulated by, for example, encouraging more company mergers and acquisitions. Second, to meet the appropriate regulations in the investment sector in Kuwait, monetary authority in Kuwait should take into consideration the WTO conditions for more openness in the economic sector. Therefore, companies in the investment sector should be more efficient to compete with foreign investment companies that decide to enter into Kuwaiti market. Therefore, the need for regulations in the Kuwaiti investment sector is more necessary than before. Third, the study of efficiency features is important to help policy makers evaluate how the investment sector will be affected by increasing competition and then formulate policies that affect that sector and the economy as a whole. Furthermore, monetary policy can play an important role in influencing the efficiency in the investment sector. Therefore, the Central Bank of Kuwait should take a leading role in regulating abnormal financial activity in the Kuwaiti market.

PurposeThis study used data envelopment analysis (DEA) models to measure financial efficiency of twelve commercial banks listed in the Egyptian stock exchange (CBLSE), along with evaluating changes to the financial efficiency during the period 2017–2019.Design/methodology/approachThe study used BCC-I, cross-efficiency, super-efficiency models, and Malmquist productivity index (MPI) to assess financial efficiency of the examined banks. The available data from both inputs and outputs were analyzed using R. studio V.I.3. 1056 software.FindingsOut of twelve banks examined, only four banks were efficient under BCC-I model over different years of the study period; however, only one bank (CIB) appeared to be the most efficient compared to other peers in the study sample. Moreover, MPI results revealed decreased financial efficiency during the study period, due to the decreased technological innovation, except for HDB. Tobit regression results confirmed that total assets and total equity are significant factors impacted financial efficiency of CBLSE.Practical implicationsThis study sheds light on the importance of evaluating financial efficiency of CBLSE to all stakeholders, to pinpoint weaknesses in banks' performance, and for evaluating financial policies and investment decisions.Originality/valueSeveral studies sought to implement different models of DEA to assess banking performance in different regions of the world, but very few studies examined financial efficiency of banks. To the best of authors’ knowledge, this study is one of those few that addressed financial efficiency of banks in Egypt.

AbstractFinancial deregulation after financial repression during 1980s and 1990s has stimulated a fierce competition among banks across the world. In pace with this, banking industry of Bangladesh is also experiencing an intense competition, since it is composed of a large number of banks. Considering this upsurge, our study aims to explore the impact of competition and efficiency on financial stability of Bangladeshi banks over 2009–2017. For exploring this nexus, we calculate Boone indicator and Z-score, construct banking efficiency index by principal component analysis, using bank-level data to measure competition, stability and efficiency, respectively, and analyze the impact of efficiency on financial stability at different levels of competition. We address the endogeneity of the estimation by employing two-step system GMM and different robustness checks. The findings of our study suggest a nonlinear competition–stability relationship, and though efficiency contributes to stability, the impact is moderated in the presence of competition. Our findings are robust to alternative measures of competition, stability and control variables, which could be useful for policy makers to formulate strategies and policies to maintain financial stability.

<p>Penelitian ini bertujuan untuk menganalisis tingkat efisiensi Bank Pembanguna Daerah (BPD) di Indonesia. Data yang digunakan dalam penelitian ini berasal dari 26 BPD yang tercatat pada Otoritas Jasa Keuangan (OJK) dan Assosiasi Bank Pembangunan Daerah (ASBANDA) sampai akhir tahun 2013. Teknik analisis data yang digunakan dalam penelitian ini adalah metode non parametrik dengan pendekatan Data Envelopment Analysis (DEA) asumsi VRS. Hasil penelitian menunjukkan bahwa efisiensi Bank Pembangunan Daerah Seluruh Indonesia menunjukkan belum seluruhnya mencapai efisien dengan rata-rata tingkat efisiesni sebesar 93,2%. Sebanyak 12 Bank dari 26 BPD seluruh Indonesia telah mencapai efisiensi 100%. Sedangkan 14 BPD lainnya tidak efisien (&lt; 100%) dalam menjalankan operasionalnya. Bank Jateng merupakan BPD yang memiliki tingkat efisiensi terendah yaitu 78,6%. Beban suku bunga merupakan penyebab dari sebagian besar BPD tidak efisien. Oleh karena itu BPD dapat melakukan langkah perbaikan efisiensi dengan meninjau kembali kebijakan suku bunga dan meningkatkan penyaluran kredit agar input yang dikeluarkan sesuai dengan outputnya dengan mengacu pada Bank Pembangunan Daerah yang telah mencapai efisien.</p><p>This reaseach aims at analizing the efficiency rate of Bank Pembangunan Daerah (BPD) in Indonesia. The data are 26 BPDs listed in Financial Services Authority (OJK) and the Association of Bank Pembangunan Daerah (ASBANDA). Non-paramretric approach, Data Envelopment Analysis (DEA) by having VRS assumption was applied. The result shows that all BPDs in Indonesia has not been efficient yet; its average efficiency is 93,2%. There are only 12 banks that has 100% efficiency. The rest of the banks are not efficient in operating the bank. As a matter of fact, Bank Jateng is one of BPDs which has the lowest efficiency, 78%. The interest burdens becomes the main factor that cause the inefficiency of BPDs, so that, they should review the policies of interests and increase lending. The above steps are for balancing the input and the output.EA), </p>

Purpose The purpose of this study is to examine how banking regulation and supervision affect the performance of microfinance institutions (MFIs). It proposes performance of the MFIs from the aspect of social and financial efficiency because the MFIs nowadays not only view to sustain the social role of poverty eradication but in the same time they must strive the financial sustainability to maintain the operation in long run. This study also includes the macroeconomic condition and firm level variables to control for social and financial efficiency of the MFIs. Design/methodology/approach The data consists 168 MFIs from five countries in Southeast Asia from year 2011 to 2017. First stage of analysis is to identify level of social and financial efficiency by using data envelopment analysis approach. Second stage is to examine impact of bank regulation and supervision to the social and financial efficiency by applying panel regression analysis and generalized method of moments for robust estimation methods. Findings The finding shows the MFIs own lower social efficiency and higher score in financial efficiency. This indicates in pursuing financial sustainability, the MFIs in Southeast Asia countries have lost sight of their original mission of poverty reduction. Furthermore, the result also presents a significant impact of bank regulation and supervision to the social and financial efficiency of the MFIs. However, the results appear in different direction when more negative effect is associated with social efficiency. This specifies that bank regulation and supervision are not appropriate to accommodate the social needs, thus hampering the effort of poverty reduction by the MFIs. Research limitations/implications The present study only concentrates on the impact bank regulation and supervision to the performance of the MFIs. As the operation of the MFIs currently has been largely exposed in banking operation, it is suggested that future studies to look for other special issues such as country governance that might influence specifically in social and financial aspect of the MFIs. Practical implications The empirical findings from this study could be useful and may have significant implications for the regulators. The regulators or policymakers could establish the new regulation framework that fulfil the dual needs (social and financial) of the MFIs. Furthermore, the empirical findings also could serve as guidance to regulators and decision-makers in designing new policies for a sustainable and competitive sector of the MFIs. Although the MFIs recently brings a similar role as commercial banks, they need to retain the social aspects as that is the original mission of the MFIs Originality/value The present study proves that the bank regulation and supervision have brought a significant influence to the performance of the MFIs in ASEAN 5 countries.

This thesis uses bank level data from developing countries and emerging economies and the data envelopment analysis (DEA) approach to provide empirical evidence on the impact of deregulation policies in the banking industry on the banks’ efficiency. Since the banking industry in China is the largest and most complex among the developing countries and in transition from a centrally planned to a market economy, its transition process and the development of the banking industry is analysed first in order to provide the background information for the following econometric analyses and the thesis. To gather the empirical evidence from China’s banking industry on the correlation between the World Trade Organization (WTO) accession and efficiency gains by commercial banks, this thesis evaluates the efficiency of Chinese banks over the period 2000–09 (this is referred to as the adapting phase of the WTO accession). During this period of time, the restrictions on the foreign banks were removed gradually. The evolution of banks’ efficiency is computed by the DEA approach combined with the bootstrapping technique. All commercial banks are broken down into four groups: (1) all banks in China; (2) domestic banks; (3) private banks; and (4) city banks. Since the categories are mutually exclusive, the empirical results reveal that the efficiency of the banks in China’s banking industry increased over this period. In terms of profit maximising, city banks were the least efficient banks and the catch-up effect was highly significant in this group, since their efficiency increased dramatically compared with other banks. However, the empirical evidence from the Chinese banking industry cannot identify the efficiency effect from removing restrictions on banks in the market. In order to identify the efficiency impacts from different kind of deregulation policies, first, the impact of the deregulation policies to remove the restrictions on foreign banks and domestic banks are explored in six Asian banking industries over the period 1997–2006, namely China (data for mainland China and Taiwan presented separately), India, Indonesia, Malaysia, Pakistan and Thailand. In the first stage of the two-stage DEA model, the output direction DEA is employed for the selected countries to compute the efficiency of the banks. In the second stage, the estimated DEA score is regressed on the indices of the restrictions in the market. The values of indices are taken from Dinh (2008). The main reason to select her indices is that these indices are used to estimate the restrictions on foreign banks and domestic banks in the given market. The expectation is that the deregulation policies to remove the restrictions on foreign or domestic banks will lead to efficiency gains in the markets. In order to overcome the reverse causality issue between the dependent variable (the estimated DEA score) and the independent variable (restriction indices), the two-step first-difference regression model is used and bank efficiency in the previous period is included in the model as one of control variables. The main reason to use the first-difference model is to partial out unobservable time and country effects from the data panel. In the sensitivity analysis, a couple of different model specifications are utilised to confirm the baseline results. The regression results show that the deregulation policies related to the operation of foreign banks are positively correlated with efficiency gains of commercial banks, but the other key set of policies to liberalise the domestic banks has not resulted in significant efficiency gains in the selected banking industries. As alternative channels for increased competition in the market, the efficiency impacts of mergers and acquisitions (M&As) are explored. Theoretically, banks may be encouraged to enhance their efficiency due to the pressures that arise from the possibility of M&As. Most previous analyses use the case study methodology in this topic rather than the cross-country statistical methodology. In this thesis, the efficiency impacts are examined with a sample of banks from a range of emerging economies (China, India, Malaysia, Russia, Thailand and Vietnam) over the period 2002–09. All banks in the selected countries are divided into three groups, namely target banks, acquiring banks, and the banks not involved in the event (or incumbent banks). To compare the differences in the impacts on efficiency between the banks involved in the event (target and acquiring banks) and the banks not involved in the event (incumbent banks), the two-stage DEA is employed. In the first stage, the efficiency of the banks is calculated in the DEA model. The results from the DEA show that the efficiency of the banks increased in most of the countries, except India, in which the bank efficiency is neutral over the sample period. In the second stage, two different matching methods was utilised in this thesis: the regression method and propensity score matching. The empirical results are robust across a number of sensitivity analyses and identification methods and reveal that the M&As reduce the efficiency of the acquiring banks and target banks in the selected emerging economies.
Thesis (Ph.D.) -- University of Adelaide, School of Economics, 2013