Do Better Institutions Improve Bank Efficiency? Evidence from a Transitional Economy

38 Pages Posted: 8 Jan 2009

See all articles by Iftekhar Hasan

Iftekhar Hasan

Fordham University ; Bank of Finland; University of Sydney

Mingming Zhou

University of Colorado, Colorado Springs - College of Business

Haizhi Wang

Illinois Institute of Technology - Stuart School of Business

Date Written: December 29, 2008

Abstract

The pace of transition in China over the last two decades has led to great variation across the country in terms of institutional and financial development. In this paper, using a panel of Chinese provinces during the period 1993-2006, we empirically investigate the determinants of the efficiency of the banking sector from an institutional perspective. The most important institutional developments in China are the emergence and gradual dominance of the market economy, financial deepening, the growth of a private sector, the establishment of secure property rights, and rule of law. We find that institutional variables play an important role in affecting banking efficiencies, and that banks tend to operate more efficiently in those regions with a greater private sector presence and more property rights awareness, while the role of financial deepening and rule of law is less straightforward.

Keywords: institutional development, bank efficiency, Chinese banks

JEL Classification: G21, O43

Suggested Citation

Hasan, Iftekhar and Zhou, Mingming and Wang, Haizhi, Do Better Institutions Improve Bank Efficiency? Evidence from a Transitional Economy (December 29, 2008). BOFIT Discussion Paper No. 28/2008, Available at SSRN: https://ssrn.com/abstract=1324586 or http://dx.doi.org/10.2139/ssrn.1324586

Iftekhar Hasan (Contact Author)

Fordham University ( email )

45 COLUMBUS AVENUE
GBA-5TH FLOOR
NEW YORK, NY 10023
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

University of Sydney ( email )

P.O. Box H58
Sydney, NSW 2006
Australia

Mingming Zhou

University of Colorado, Colorado Springs - College of Business ( email )

1420 Austin Bluffs Parkway
Colorado Springs, CO 80933-7150
United States
1-719-255-5153 (Phone)

Haizhi Wang

Illinois Institute of Technology - Stuart School of Business ( email )

Stuart Graduate School of Business
565 W. Adams St.
Chicago, IL 60661
United States

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