Efficiency Determinants and Dynamic Efficiency Changes in Latin American Banking Industries

26 Pages Posted: 21 Mar 2013 Last revised: 3 Apr 2013

See all articles by Benito Sanchez

Benito Sanchez

University of New Orleans - College of Business Administration - Department of Economics and Finance

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

James Bartkus

Xavier University of Louisiana

Multiple version iconThere are 3 versions of this paper

Date Written: March 20, 2013

Abstract

This paper investigates the determinants of efficiency and dynamic efficiency changes across Latin American banking industries during recent periods of financial liberalization. Allocative, technical, pure technical, and scale efficiency measures are calculated and analyzed for seven Latin American countries. Consistent with extant literature, profit inefficiency is higher than cost inefficiency across our sample, suggesting that most of the profit inefficiency comes from the revenue side. The decomposition of revenue efficiency into revenue allocative efficiency and technical efficiency suggests that the source of inefficiency is regulatory (allocative) rather than managerial (technical). Moreover, consistent with what practitioners would expect, efficient banks have lower overhead costs relative to total income, use resources better, have higher quality portfolios, and have higher earnings (e.g., higher return on assets – ROA and return on equity – ROE) than inefficient ones. Furthermore, financial liberalization has brought productivity increases throughout Latin America; but this increase in productivity is a consequence of technological progress rather than enhanced technical efficiency.

Keywords: Latin American banks, cost, profit, revenue efficiency, productivity index

JEL Classification: D2, G2, G21, G28

Suggested Citation

Sanchez, Benito and Hassan, M. Kabir and Bartkus, James, Efficiency Determinants and Dynamic Efficiency Changes in Latin American Banking Industries (March 20, 2013). Journal of CENTRUM Cathedra: The Business and Economics Research Journal, Vol. 6, Issue 1, pp. 27-52, 2013, Available at SSRN: https://ssrn.com/abstract=2236349

Benito Sanchez

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

M. Kabir Hassan (Contact Author)

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

James Bartkus

Xavier University of Louisiana ( email )

1 Drexel Drive, Box 151
New Orleans, LA 70125-1098
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
117
Abstract Views
778
rank
101,319
PlumX Metrics