Cost Efficiency of Ghana’s Banking Industry: A Panel Data Analysis

The International Journal of Business and Finance Research, Vol. 8 (2) pp. 69-86, 2014

18 Pages Posted: 2 Feb 2014

See all articles by Kofi Adjei-Frimpong

Kofi Adjei-Frimpong

Lincoln University (NZ)

Christopher Gan

Lincoln University (NZ)

Baiding Hu

Lincoln University (NZ)

Date Written: 2014

Abstract

This study analyzes the efficiency of the banking industry in Ghana over the period of 2001-2010 using the data envelopment analysis. The study investigates the impact of size, capitalization, loan loss provision, inflation rate and GDP growth rate on Ghana’s bank efficiency using both static and dynamic panel data models. The static model is estimated by the fixed effects estimator whereas the dynamic mdoel is estimated by the two step system GMM estimator. The results suggest that Ghana banks are inefficient. This study reveals that well-capitalized banks in Ghana are less cost efficient. In addition, bank size has no influence on bank cost efficiency suggesting that larger banks in Ghana have no cost advantages over their smaller counterparts. The findings also exhibit that loan loss provision ratio has no effect on bank efficiency in Ghana. This study finds GDP growth rate negatively influences bank cost efficiency and that lagged cost efficiency tends to persist from year to year.

Keywords: Data Envelopment Analysis, Bank Efficiency, Cost Efficiency

JEL Classification: E44, E50, E60

Suggested Citation

Adjei-Frimpong, Kofi and Gan, Christopher and Hu, Baiding, Cost Efficiency of Ghana’s Banking Industry: A Panel Data Analysis (2014). The International Journal of Business and Finance Research, Vol. 8 (2) pp. 69-86, 2014, Available at SSRN: https://ssrn.com/abstract=2322961

Kofi Adjei-Frimpong (Contact Author)

Lincoln University (NZ) ( email )

PO Box 85084
Ellesmere Junction Road/Springs Road
Lincoln, 7647
New Zealand

Christopher Gan

Lincoln University (NZ) ( email )

PO Box 85084
Ellesmere Junction Road/Springs Road
Lincoln, 7647
New Zealand

Baiding Hu

Lincoln University (NZ) ( email )

PO Box 85084
Ellesmere Junction Road/Springs Road
Lincoln, 7647
New Zealand

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