Privatization Matters: Bank Efficiency in Transition Countries

37 Pages Posted: 11 Nov 2008

See all articles by John Bonin

John Bonin

Wesleyan University - Economics Department

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Paul Wachtel

New York University - Stern School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: March 2004


To investigate the impact of bank privatization in transition countries, we take the largest banks in six relatively advanced countries, namely, Bulgaria, the Czech Republic, Croatia, Hungary, Poland and Romania. Income and balance sheet characteristics are compared across four bank ownership types. Efficiency measures are computed from stochastic frontiers and used in ownership and privatization regressions having dummy variables for bank type. Our empirical results support the hypotheses that foreign-owned banks are most efficient and government-owned banks are least efficient. In addition, the importance of attracting a strategic foreign owner in the privatization process is confirmed. However, counter to the conjecture that foreign banks cream skim, we find that domestic banks have a local advantage in pursuing fee-for-service business. Finally, we show that both the method and the timing of privatization matter to efficiency; specifically, voucher privatization does not lead to increased efficiency and early privatized banks are more efficient than later-privatized banks even though we find no evidence of a selection effect.

Suggested Citation

Bonin, John P. and Hasan, Iftekhar and Wachtel, Paul, Privatization Matters: Bank Efficiency in Transition Countries (March 2004). NYU Working Paper No. S-FI-04-04, Available at SSRN:

John P. Bonin

Wesleyan University - Economics Department ( email )

Middletown, CT 06459
United States
203-685-2000 (Phone)

Iftekhar Hasan

Fordham University ( email )

NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006

Paul Wachtel (Contact Author)

New York University - Stern School of Business ( email )

44 West 4th St.
New York, NY 10012
United States
212-998-4030 (Phone)
212-995-4218 (Fax)


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