Financial Reform and Bank Efficiency: A Multi-Country Analysis

33 Pages Posted: 19 Feb 2009

See all articles by Aljar Meesters

Aljar Meesters

University of Groningen - Faculty of Economics and Business

Tanveer Shehzad

affiliation not provided to SSRN

Niels Hermes

University of Groningen - Faculty of Economics and Business

Date Written: February 16, 2009

Abstract

This paper investigates the impact of financial reform on bank efficiency. More specifically, we distinguish between financial liberalization measures and measures of the quality of bank regulation measures, and study their relationship to bank efficiency separately. Moreover, we analyze whether the impact of financial liberalization on bank efficiency is conditional on the quality of prudential regulation of the banking system. We apply stochastic frontier analysis to calculate bank efficiency at the individual bank level and use a new and detailed database that measures different aspects of financial reform. The dataset consists of a sample of over 26,000 bank-year observations from 41 countries for the period 1996-2002. Overall, we find support for the positive impact of financial liberalization policies, as well as for the quality of bank regulation, on bank efficiency. Moreover, we show that the impact of financial liberalization policies is conditional on the extent to which bank regulation has been adopted.

Keywords: financial reform, bank efficiency, stochastic frontier analysis

Suggested Citation

Meesters, Aljar and Shehzad, Tanveer and Hermes, Niels, Financial Reform and Bank Efficiency: A Multi-Country Analysis (February 16, 2009). Available at SSRN: https://ssrn.com/abstract=1344624 or http://dx.doi.org/10.2139/ssrn.1344624

Aljar Meesters

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

Tanveer Shehzad

affiliation not provided to SSRN ( email )

Niels Hermes (Contact Author)

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands