Journal of Economics and Finance

, Volume 39, Issue 2, pp 327–346

The differing efficiency experiences of banks leading up to the global financial crisis: A comparative empirical analysis from Australia, Canada and the UK

  • Dong Xiang
  • Abul Shamsuddin
  • Andrew C. Worthington
Article

DOI: 10.1007/s12197-013-9258-y

Cite this article as:
Xiang, D., Shamsuddin, A. & Worthington, A.C. J Econ Finan (2015) 39: 327. doi:10.1007/s12197-013-9258-y

Abstract

This paper employs a mixed two-stage approach to estimate and explain differences in the cross-country efficiency of ten Australian, five UK and eight Canadian banks over the period 1988 to 2008 using stochastic distance, cost and profit frontiers. The first stage estimates efficiency scores for banks using a common frontier including uncontrollable environmental factors such as per capita national income, bank concentration, capital adequacy, deposit density and the average profit margin. The second stage investigates how controllable firm-specific factors help explain the differences in efficiency. In line with the experience of the banking sector during the recent global financial crisis, the evidence indicates that Australian banks exhibited superior efficiency. Key factors found to positively affect efficiency include intangible assets and the loans-to-deposits and loans-to-assets ratios. Key factors found to negatively affect efficiency include bank size, loan loss provisions, and financial leverage.

Keywords

Stochastic frontier analysisTechnical, cost and profit efficiencyBanks

JEL classification

C23D24G21

Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  • Dong Xiang
    • 1
  • Abul Shamsuddin
    • 2
  • Andrew C. Worthington
    • 3
  1. 1.Department of Accounting, Finance and EconomicsGriffith UniversityNathanAustralia
  2. 2.Newcastle Business SchoolUniversity of NewcastleCallaghanAustralia
  3. 3.Department of Accounting, Finance and EconomicsGriffith UniversityNathanAustralia