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Efficiency, ownership and financial structure in European banking: A cross‐country comparison

Claudia Girardone (School of Accounting, Finance and Management, University of Essex, Colchester, UK)
John C. Nankervis (School of Accounting, Finance and Management, University of Essex, Colchester, UK)
Ekaterini‐Fotini Velentza (School of Accounting, Finance and Management, University of Essex, Colchester, UK)

Managerial Finance

ISSN: 0307-4358

Article publication date: 13 February 2009

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Abstract

Purpose

This paper aims to compare the cost efficiencies across bank‐and market‐based EU countries for the different groups of commercial, savings and co‐operative banks; and between listed and non‐listed banking institutions. In addition, it attempts to determine any potential implications for bank efficiency originating from differences in financial structure.

Design/methodology/approach

Efficiency scores are estimated using the Battese and Coelli's time‐varying stochastic frontier approach. The classification of bank‐ and market‐based financial systems is based on the World Bank's Financial Structure Database.

Findings

On the whole the results reject the agency theory hypothesis that managers of privately‐owned banks are more cost efficient than those of mutual banking institutions because of capital market devices as it is found that mutual banks operating in EU‐15 countries are significantly more cost efficient than commercial banks. Furthermore, results are mixed concerning the financial structure hypothesis that in developed financial systems bank efficiency should not be statistically different across bank‐vs market‐based economies.

Research limitations/implications

The analysis suggests that differences in cost efficiency across bank types can often be explained by the prevailing financial system in each economy.

Practical implications

The evidence illustrates the national diversity of corporate governance systems in Europe and can be important to policy makers who are concerned with the full integration of the European financial system.

Originality/value

To the best of the authors’ knowledge, there are no previous similar empirical works for the EU banking sector. Such a study has important policy implications especially due to the fact that the EU banking sector is experiencing profound structural changes and a full integration has not yet been achieved.

Keywords

Citation

Girardone, C., Nankervis, J.C. and Velentza, E. (2009), "Efficiency, ownership and financial structure in European banking: A cross‐country comparison", Managerial Finance, Vol. 35 No. 3, pp. 227-245. https://doi.org/10.1108/03074350910931753

Publisher

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Emerald Group Publishing Limited

Copyright © 2009, Emerald Group Publishing Limited

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