Abstract
This paper evaluates the performance of East Asian banks during the period of 2000–2010 by controlling country-specific conditions comprehensively. Particularly, it seeks to show that country-specific conditions are significant factors in estimating the common frontier by which the performance of all banks are compared. Thus, disregarding political conditions, regulatory environments, and country risk would lead to inaccurate efficiency scores because of the inaccurate common frontier. Following this further, an inaccurate measure of bank performance can hardly reveal bank problems before turning into a crisis. Our results confirm the significant impact of country-specific conditions on the common frontier, and hence bank efficiencies. The findings suggest that researchers, bank managers, and regulators also consider other factors other than economic conditions in their evaluations and decisions.
Similar content being viewed by others
References
Abd Karim MZ (2001) Comparative bank efficiency across select ASEAN countries. ASEAN Econ Bull 18:289
Abdul-Majid M, Saal DS, Battisti G (2009) The impact of Islamic banking on the cost efficiency and productivity change of Malaysian commercial banks. Appl Econ 43:2033–2054
Abdul-Majid M, Saal DS, Battisti G (2010) Efficiency in Islamic and conventional banking: an international comparison. J Prod Anal 34:25–43
Aigner D, Lovell CAK, Schmidt P (1977) Formulation and estimation of stochastic frontier production function models. J Econ 6:21–37
Akhigbe A, Mcnulty JE (2011) Bank monitoring, profit efficiency and the commercial lending business model. J Econ Bus 63:531–551
Ariff M, Can L (2009) IMF bank-restructuring efficiency outcomes: evidence from East Asia. J Financ Serv Res 35:167–187
Arnold PJ (2012) The political economy of financial harmonization: the East Asian financial crisis and the rise of international accounting standards. Acc Organ Soc 37:361–381
Battese GE, Coelli TJ (1995) A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empir Econ 20:325–332
Berger AN, Deyoung R (1997) Problem loans and cost efficiency in commercial banks. J Bank Financ 21:849–870
Berger AN, Humphrey DB (1997) Efficiency of financial institutions: international survey and directions for future research. Eur J Oper Res 98:175–212
Biglaiser G, Derouen K Jr, Archer CC (2011) Politics, early warning systems, and credit rating agencies. Foreign Policy Anal 7:67–87
Carbó Valverde S, Humphrey DB, López Del Paso R (2007) Do cross-country differences in bank efficiency support a policy of “national champions”? J Bank Financ 31:2173–2188
Carvallo O, Kasman A (2005) Cost efficiency in the Latin American and Caribbean banking systems. J Int Financ Mark Inst Money 15:55–72
Coelli TJ, Rao DSP, O’Donnell CJ, Battese GE (2005) An introduction to efficiency and productivity analysis. Springer US, New York
Cuesta RA, Orea L (2002) Mergers and technical efficiency in Spanish savings banks: a stochastic distance function approach. J Bank Financ 26:2231–2247
Dietsch M, Lozano-Vivas A (2000) How the environment determines banking efficiency: a comparison between French and Spanish industries. J Bank Financ 24:985–1004
Fang Y, Hasan I, Marton K (2011) Bank efficiency in South-Eastern Europe. Econ Transit 19:495–520
Farrell MJ (1957) The measurement of productive efficiency. J R Stat Soc Ser A (Gen) 120:253–290
Feng G, Serletis A (2010) Efficiency, technical change, and returns to scale in large US banks: panel data evidence from an output distance function satisfying theoretical regularity. J Bank Financ 34:127–138
Fiordelisi F, Molyneux P, Marqués Ibáñez D (2010) Efficiency and Risk in European Banking. http://www.ecb.europa.eu, 1211
Goldberg L, Dages BG, Kinney D (2000) Foreign and Domestic Bank Participation in Emerging Markets: Lessons from Mexico and Argentina. National Bureau of Economic Research 7714
Greene WH (1990) A gamma-distributed stochastic frontier model. J Econ 46:141–163
Jiang C, Yao S, Zhang Z (2009) The effects of governance changes on bank efficiency in China: a stochastic distance function approach. China Econ Rev 20:717–731
Jonathan W (2004) Determining management behaviour in European banking. J Bank Financ 28:2427–2460
Kasman A, Yildirim C (2006) Cost and profit efficiencies in transition banking: the case of new EU members. Appl Econ 38:1079–1090
Koutsomanoli-Filippaki A, Mamatzakis E (2009) Performance and Merton-type default risk of listed banks in the EU: a panel VAR approach. J Bank Financ 33:2050–2061
Kwan SH (2003) Operating performance of banks among Asian economies: an international and time series comparison. J Bank Financ 27:471–489
Leblang D, Satyanath S (2008) Politically generated uncertainty and currency crises: theory, tests, and forecasts. J Int Money Financ 27:480–497
Lozano-Vivas A, Pasiouras F (2010) The impact of non-traditional activities on the estimation of bank efficiency: international evidence. J Bank Financ 34:1436–1449
Lozano-Vivas A, Kumbhakar S, Fethi M, Shaban M (2011) Consolidation in the European banking industry: how effective is it? J Prod Anal 36:247–261
Mamatzakis E, Staikouras C, Koutsomanoli-Filippaki A (2008) Bank efficiency in the new European Union member states: is there convergence? Int Rev Financ Anal 17:1156–1172
Manlagñit MCV (2011) Cost efficiency; determinants; and risk preferences in banking: a case of stochastic frontier analysis in the Philippines. J Asian Econ 22:23–35
Maudos J, DE Guevara JF (2007) The cost of market power in banking: social welfare loss vs. cost inefficiency. J Bank Financ 31:2103–2125
Meeusen W, van den Broeck J (1977) Efficiency estimation from Cobb-Douglas production functions with composed error. Int Econ Rev 18:435–444
Michaelides PG, Vouldis AT, Tsionas EG (2010) Globally flexible functional forms: the neural distance function. Eur J Oper Res 206:456–469
O’Donnell CJ, Coelli TJ (2005) A Bayesian approach to imposing curvature on distance functions. J Econ 126:493–523
Podpiera J, Weill L (2008) Bad luck or bad management? Emerging banking market experience. J Financ Stab 4:135–148
Rötheli TF (2010) Causes of the financial crisis: risk misperception, policy mistakes, and banks’ bounded rationality. J Socio-Econ 39:119–126
Sealey CW Jr, Lindley JT (1977) Inputs, outputs, and a theory of production and cost at depository financial institutions. J Financ 32:1251–1266
Staikouras C, Mamatzakis E, Koutsomanoli-Filippaki A (2008) Cost efficiency of the banking industry in the South Eastern European region. J Int Financ Mark Inst Money 18:483–497
Stevenson RE (1980) Likelihood functions for generalized stochastic frontier estimation. J Econ 13:57–66
Sun L, Chang T-P (2011) A comprehensive analysis of the effects of risk measures on bank efficiency: evidence from emerging Asian countries. J Bank Financ 35:1727–1735
Sussangkarn C (2011) Chiang Mai initiative multilateralization: origin, development, and outlook. Asian Econ Policy Rev 6:203–220
Thoraneenitiyan N, Avkiran NK (2009) Measuring the impact of restructuring and country-specific factors on the efficiency of post-crisis East Asian banking systems: integrating DEA with SFA. Socio Econ Plan Sci 43:240–252
Williams J, Nguyen N (2005) Financial liberalisation, crisis, and restructuring: a comparative study of bank performance and bank governance in South East Asia. J Bank Financ 29:2119–2154
Author information
Authors and Affiliations
Corresponding author
Rights and permissions
About this article
Cite this article
Tamadonnejad, A., Abdul-Rahman, A., Abdul-Majid, M. et al. The evaluation of East Asian banks by considering economic and political conditions as well as country risk. Int Econ Econ Policy 14, 27–41 (2017). https://doi.org/10.1007/s10368-015-0318-y
Published:
Issue Date:
DOI: https://doi.org/10.1007/s10368-015-0318-y