FDI and Heterogeneity in Bank Efficiency: Evidence from Emerging Markets

24 Pages Posted: 11 Sep 2017

See all articles by Palitha Konara

Palitha Konara

University of Plymouth - Plymouth Business School

Yong Tan

University of Huddersfield - Business School

Jill Johnes

University of Huddersfield

Date Written: September 7, 2017

Abstract

The inquiry whether foreign firms are more productive than local firms have been one of the key research questions among the international business scholars. We extend this line of research by addressing the heterogeneity among different performance measures. In this study, we examine the impact of FDI on three internal measures of efficiencies, i.e. technical, managerial and cost efficiency as well as an external measure of efficiency, i.e. revenue efficiency in the emerging markets banking sector. In contrast to previous studies that have perceived bank efficiency in a generic sense and have operationalized their efficiency measure with different efficiency measures, we develop theoretical arguments to explain how FDI-efficiency relationship can differ across these five types of efficiencies. We empirically test our hypothesis while accounting for endogeneity among efficiency, risk and capital under a three stage least squares model. Our findings broadly suggest that foreign banks have an advantage in terms of technical efficiency, managerial efficiency, and scale efficiency but do not have an advantage in terms of cost efficiency and revenue efficiency.

Keywords: Bank efficiency, Foreign Direct Investment, Emerging Markets

JEL Classification: F23, G21

Suggested Citation

Konara, Palitha and Tan, Yong and Johnes, Jill, FDI and Heterogeneity in Bank Efficiency: Evidence from Emerging Markets (September 7, 2017). Available at SSRN: https://ssrn.com/abstract=3033983 or http://dx.doi.org/10.2139/ssrn.3033983

Palitha Konara (Contact Author)

University of Plymouth - Plymouth Business School ( email )

Mast House
Plymouth, Devon PL4 8AA
United Kingdom

Yong Tan

University of Huddersfield - Business School ( email )

Queensgate
Huddersfield, HD1 3DH
United Kingdom
+44(0)148447 3578 (Phone)

Jill Johnes

University of Huddersfield ( email )

Queensgate
Huddersfield HD1 3DH
United Kingdom

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