The Effects of Risks and Environmental Factors on Cost Efficiency: The Case of Developed and Developing Banking Systems in East Asia and Pacific Region
Posted: 16 Aug 2014
Date Written: August 1, 2014
The interrelationship between risks and bank efficiency has received much attention in banking literature for years, especially after the Asian financial crisis in 1997 and the Global financial crisis in 2008. This study collected and analyzed the data of 247 banks of twelve developed and developing economies in East Asia and Pacific area over the 2003-2012 period to find the empirical evidence for that relationships. The analyzing process went through two main stages: Measuring banks cost efficiency by applying Stochastic Frontier Analysis and examining the effects of risks on cost efficiency. We found that there are significant relationships among risks, cost efficiency, and environmental factors, but they are in different levels when comparing between developed and developing economies, or between the periods of pre- and post 2008 financial crisis.
Keywords: bank cost efficiency, bank risk, SFA, banking, East Asia and Pacific
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