Privatization matters: Bank efficiency in transition countries |
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| Affiliation: | 1. Wesleyan University, Middletown, CT 06459, USA;2. Rensselaer Polytechnic Institute, Troy, NY 12180, USA;3. Bank of Finland, 00101 Helsinki, Finland;4. Stern School of Business, New York University, 44 West 4th St., New York, NY 10012, USA;1. Department of Finance, Deakin Business School, Faculty of Business and Law, Deakin University, 221 Burwood Highway, Burwood, Vic, 3125, Australia;2. Suleman Dawood School of Business, Lahore University of Management Sciences, Sector U, DHA, Lahore Cantt, 54792, Pakistan;1. Department of Finance and Banking, Faculty of Business and Accountancy, University of Malaya, 50603 Kuala Lumpur, Malaysia;2. Department of Economics, Faculty of Economics and Administration, University of Malaya, 50603 Kuala Lumpur, Malaysia;1. LEREPS, Université de Toulouse, France;2. CRES (Consortium for Economic and Social Research), Dakar, Senegal;3. Université Paris Dauphine, PSL Research University, IRD, LEDa, UMR [225], DIAL, 75016 Paris, France;4. Université Cheikh Anta Diop de Dakar, CRES, Senegal;5. Université Cheikh Anta Diop de Dakar, Senegal;1. Graduate School of Environmental Studies, Tohoku University, 6-6-20 Aramaki-Aza-Aoba, Aoba-ku, Sendai 980-8579, Japan;2. School of Business, Management and Economics, The University of Sussex, Brighton BN1 9RH, United Kingdom;1. Center for Studies in Logistics, Infrastructure and Management, COPPEAD Graduate Business School, Federal University of Rio de Janeiro, Rua Paschoal Lemme, 355, CEP, 21949-900, Brazil;2. Department of Economics, Lancaster University Management School, LA1 4YX, United Kingdom;3. School of Economics, Jinan University, Huangpu West Road No. 601, Guangzhou, Guangdong Province, China |
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| 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 and efficiency measures computed from stochastic frontiers are compared across four bank ownership types. 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 cherry pick the most profitable opportunities, 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 performance; 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. |
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