Financial Reform and Bank Efficiency: A Multi-Country Analysis

32 Pages Posted: 23 Aug 2010

See all articles by Niels Hermes

Niels Hermes

University of Groningen - Faculty of Economics and Business

Choudhry Tanveer Shehzad

SDSB, Lahore University of Managment Sciences

Aljar Meesters

University of Groningen - Faculty of Economics and Business

Date Written: August, 23 2010

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 34 countries for the period 1996-2002. Overall, we show that the impact of financial liberalization policies is conditional on the extent to which bank regulation has been adopted and developed. Moreover, we show that the impact of financial liberalization and the role played by the quality of bank regulation differs between countries with different income levels.

Keywords: Financial Reform, Bank Efficiency, SFA

JEL Classification: E58, G21

Suggested Citation

Hermes, Niels and Shehzad, Choudhry Tanveer and Meesters, Aljar, Financial Reform and Bank Efficiency: A Multi-Country Analysis (August, 23 2010). 23rd Australasian Finance and Banking Conference 2010 Paper, Available at SSRN: https://ssrn.com/abstract=1663738 or http://dx.doi.org/10.2139/ssrn.1663738

Niels Hermes

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

Postbus 72
9700 AB Groningen
Netherlands

Choudhry Tanveer Shehzad

SDSB, Lahore University of Managment Sciences ( email )

D.H.A, Lahore Cantt
Lahore, Punjab 54792
Pakistan

Aljar Meesters (Contact Author)

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

Postbus 72
9700 AB Groningen
Netherlands

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