Privatization Matters: Bank Efficiency in Transition Countries

39 Pages Posted: 8 May 2004

See all articles by John Bonin

John Bonin

Wesleyan University - Economics Department

Paul Wachtel

New York University - Stern School of Business

Iftekhar Hasan

Fordham University - Gabelli School of Business; Bank of Finland

Multiple version iconThere are 3 versions of this paper

Date Written: June 2004

Abstract

To investigate the impact of bank privatization in transition countries, we take the largest banks in six relatively advanced countries, namely, Bulgaria, the Czech Republic, Croatia, Hungary, Poland and Romania. Income and balance sheet characteristics are compared across four bank ownership types. Efficiency measures are computed from stochastic frontiers and used in ownership and privatization regressions having dummy variables for bank type. Our empirical results support the hypotheses that foreign-owned banks are most efficient and government-owned banks are least efficient. In addition, the importance of attracting a strategic foreign owner in the privatization process is confirmed. However, counter to the conjecture that foreign banks cream skim, we find that domestic banks have a local advantage in pursuing fee-for-service business. Finally, we show that both the method and the timing of privatization matter to efficiency; specifically, voucher privatization does not lead to increased efficiency and early-privatized banks are more efficient than later-privatized banks even though we find no evidence of a selection effect.

Keywords: Bank efficiency, bank privatization, strategic foreign owner, transition countries

JEL Classification: P30, P34, P52

Suggested Citation

Bonin, John P. and Wachtel, Paul and Hasan, Iftekhar, Privatization Matters: Bank Efficiency in Transition Countries (June 2004). William Davidson Institute Working Paper No. 679; BOFIT Discussion Paper No. 8/2004. Available at SSRN: https://ssrn.com/abstract=542722 or http://dx.doi.org/10.2139/ssrn.542722

John P. Bonin (Contact Author)

Wesleyan University - Economics Department ( email )

Middletown, CT 06459
United States
203-685-2000 (Phone)

Paul Wachtel

New York University - Stern School of Business ( email )

44 West 4th St.
New York, NY 10012
United States
212-998-4030 (Phone)
212-995-4218 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~pwachtel

Iftekhar Hasan

Fordham University - Gabelli School of Business ( email )

Rose Hill Campus Bronx
New York, NY 10458
United States

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

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