Does Efficiency Make Bank Different in GFC? An Empirical Analysis on Australian, Canadian and UK Banks

34 Pages Posted: 14 Feb 2013

See all articles by Dong Xiang

Dong Xiang

Shandong Normal University; SDNU

Abul Shamsuddin

University of Newcastle (Australia) - Newcastle Business School

Andrew C. Worthington

Griffith University

Date Written: February 13, 2013

Abstract

This paper employs a mixed two-stage approach to estimate and explain differences in the cross-country efficiency of ten Australian, five UK and eight Canadian banks over the period 1988 to 2008 using stochastic distance, cost and profit frontiers. The first stage estimates efficiency scores for banks from a cross-country common frontier including the uncontrollable environmental factors such as per capita national income, bank concentration, capital adequacy, deposit density and average profit margin, while the second stage investigates how controllable firm-specific factors can explain the differences in efficiency scores among the banks of the three countries. In line with the experience of the banking sector during the recent global finance crisis, the evidence indicates that Australian banks exhibit superior efficiency compared with their Canadian and UK counterparts. Key factors found to affect efficiency positively include intangible assets and the loans-to-deposits and loans-to-assets ratios. In contrast, key factors found to affect efficiency negatively include bank size, loan loss provisions and financial leverage.

Keywords: stochastic frontier analysis, efficiency comparison, efficiency factors, banks

JEL Classification: C23, D24, G21

Suggested Citation

Xiang, Dong and Shamsuddin, Abul and Worthington, Andrew C., Does Efficiency Make Bank Different in GFC? An Empirical Analysis on Australian, Canadian and UK Banks (February 13, 2013). Asian Finance Association (AsFA) 2013 Conference, Available at SSRN: https://ssrn.com/abstract=2216429 or http://dx.doi.org/10.2139/ssrn.2216429

Dong Xiang (Contact Author)

Shandong Normal University ( email )

1 Daxue Rd
Jinan, Shandong 250353
China

SDNU ( email )

Jinan
China

Abul Shamsuddin

University of Newcastle (Australia) - Newcastle Business School ( email )

City Campus East – 231
Callaghan, NSW 2308
Australia

Andrew C. Worthington

Griffith University ( email )

170 Kessels Road
Nathan, Queensland 4111
Australia
+61 (0)7 3735 4273 (Phone)
+61 (0)7 3735 3719 (Fax)

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
12
Abstract Views
394
PlumX Metrics