What Determines Differences in Foreign Bank Efficiency? Australian Evidence

44 Pages Posted: 9 Jan 2010

See all articles by Jan-Egbert Sturm

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich; CESifo (Center for Economic Studies and Ifo Institute)

Barry Williams

Department of Banking and Finance; Financial Research Network (FIRN)

Multiple version iconThere are 3 versions of this paper

Date Written: January 7, 2010

Abstract

This study examines the factors that determine differences in efficiency of foreign banks in the host market (Australia). The impact of home market, host market and parent bank characteristics are considered within the frameworks offered by comparative advantage and new trade theories. Parametric distance functions are used to estimate the efficiency of foreign banks in Australia, and the robustness of model specification is tested using both general-to-specific modelling and extreme bounds analysis. It is found that following clients reduces the efficiency of profit creation. Incumbent bank’s market share acts as a barrier to entry, while parent bank profits do not improve host nation efficiency. The limited global advantage hypothesis was found to be relevant for banks from the United Kingdom, while banks from the United States were generally less efficient.

Keywords: Foreign bank efficiency, distance functions, extreme bounds analysis, barriers to entry, following clients

JEL Classification: G15, G21, C15, C52

Suggested Citation

Sturm, Jan-Egbert and Williams, Barry, What Determines Differences in Foreign Bank Efficiency? Australian Evidence (January 7, 2010). Finance and Corporate Governance Conference 2010 Paper. Available at SSRN: https://ssrn.com/abstract=1532628 or http://dx.doi.org/10.2139/ssrn.1532628

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich ( email )

Zurich
Switzerland

HOME PAGE: http://www.kof.ethz.ch

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, 81679
Germany

HOME PAGE: http://www.cesifo.de

Barry Williams (Contact Author)

Department of Banking and Finance ( email )

Building H
Caulfield East, Victoria 3145
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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