What Determines Differences in Foreign Bank Efficiency? Australian Evidence

34 Pages Posted: 26 Nov 2005

See all articles by Jan-Egbert Sturm

Jan-Egbert Sturm

KOF Swiss Economic Institute, ETH Zurich; CESifo (Center for Economic Studies and Ifo Institute)

Barry Williams

Department of Banking and Finance; Financial Research Network (FIRN)

Multiple version iconThere are 3 versions of this paper

Date Written: November 2005

Abstract

This study applies parametric distance functions to estimate the efficiency of foreign banks in Australia, and subsequently employs extreme bounds analysis to establish the determinants of foreign bank efficiency that are robust to model specification. The limited global advantage hypothesis of Berger et al (2000) is supported. Following clients is found to reduce the efficiency of the profit-creation process. The market share of the incumbent banks acts as a barrier to entry to efficiency in the retail market, with acquisition of a domestic bank reducing this effect. Internet-based bank product delivery reduces the efficiency of profit creation in the initial phases of operation, and parent profits do not improve efficiency in the host market.

Keywords: foreign bank efficiency, distance functions, extreme bounds analysis, barriers to entry, following clients

JEL Classification: G15, G21, C15, C52

Suggested Citation

Sturm, Jan-Egbert and Williams, Barry, What Determines Differences in Foreign Bank Efficiency? Australian Evidence (November 2005). CESifo Working Paper Series No. 1587. Available at SSRN: https://ssrn.com/abstract=854924

Jan-Egbert Sturm (Contact Author)

KOF Swiss Economic Institute, ETH Zurich ( email )

Zurich
Switzerland

HOME PAGE: http://www.kof.ethz.ch

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, 81679
Germany

HOME PAGE: http://www.cesifo.de

Barry Williams

Department of Banking and Finance ( email )

Building H
Caulfield East, Victoria 3145
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

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