Determinants of bank efficiency: evidence from a semi‐parametric methodology

Abstract

Purpose

This paper aims to analyze bank efficiency into a number of bank‐specific, industry‐specific and macroeconomic determinants.

Design/methodology/approach

The authors follow a semi‐parametric two‐stage methodology, where productive efficiency is derived via a non‐parametric technique in the first stage and then the scores obtained are linked to a series of determinants of bank efficiency, using a double bootstrapping procedure.

Findings

Overall, it is found that the banking sectors of almost all the sample countries show a gradual improvement in their efficiency levels. The model used shows that a number of determinants like bank size, industry concentration and the investment environment have a positive impact on bank efficiency, which is not the case when standard Tobit models are employed.

Research limitations/implications

The findings have important implications for the relevance of well‐known hypotheses that refer to the performance of the banking sectors, like the structure‐conduct‐performance and the efficient structure hypotheses. These implications are not necessarily verified when past conventional econometric methodologies are used.

Practical implications

The paper offers new insights to policy makers, bank managers and practitioners on the relevance of a number of driving factors of bank efficiency that might help them to improve the performance of the banking system and enhance the quality of services provided.

Originality/value

This is the first paper in the bank efficiency literature that employs a semi‐parametric two‐stage model, which relaxes several deficiencies of previous two‐stage empirical approaches thus, offering a solution to the many problematic features of standard censored regressions.

Citation

Delis, M.D. and Papanikolaou, N.I. (2009), "Determinants of bank efficiency: evidence from a semi‐parametric methodology", Managerial Finance, Vol. 35 No. 3, pp. 260-275. https://doi.org/10.1108/03074350910931771