Cost frontier efficiency and risk-return analysis in an emerging market

Rao, Ananth

doi:10.1016/j.irfa.2004.10.006

Cited by 48 publications

(31 citation statements)

References 27 publications

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“…The intermediation ratio (LA), bank size (lnTA), the equity to assets ratio (EA) and the profitability ratio (ROE) exert a positive impact on bank performance in line with previous studies (Miller and Noulas, 1996;Isik and Hasan, 2003;Casu and Girardone, 2004;Rao, 2005). On the other hand, the net interest 10 Regarding the translog cost function using the Battese and Coelli (1995) model refer to table A1 in the appendix.…”

Section: The Impact Of the Control Variablessupporting

confidence: 82%

Does business regulation matter for banks in the European Union?

Kalyvas

Mamatzakis

2014

Journal of International Financial Markets, Institutions and Mo

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This paper provides a comprehensive analysis of the impact of business and financial specific regulations on banks in the EU-27 over the 2004-2010 periods. We employ for the first time in the banking literature a unique dataset of a wide range of regulation indices from the "Doing Business" project of the World Bank. Results for the credit regulation indices show that the strength of creditor rights is negatively related to bank performance as measured by cost efficiency, although this effect becomes less resilient during the recent crisis period (2008)(2009)(2010). On the other hand, credit information sharing improves performance, a result that is further magnified during the crisis. Tax-compliance costs and entry regulation constrain bank performance. More stringent regulation of labour, in terms of minimum wage and dismissal costs, and insolvency regulation are positively associated with performance. Furthermore, regulation that protects investors from management expropriation, such as the extent of director liability, exerts a positive impact on bank performance and more so in the crisis years. Finally, we use interaction terms between the business regulation variables and institutional quality as measured by the rule of law and corruption. Results show that there are cases that institutional quality influences positively or negatively the individual effects of specific types of business regulation on bank performance.Keywords: regulation of business; bank performance; European Union. JEL Classification: G21, G281 Professor of Finance, School of Business, Management and Economics, University of Sussex, Jubilee Building, Brighton, BN1 9SL, United Kingdom.2 School of Business, Management and Economics, University of Sussex, Jubilee Building, Brighton, BN1 9SL, United Kingdom. Corresponding author: Emmanuel Mamatzakis, e.mamatzakis@sussex.ac.uk. 1. IntroductionBusiness regulations are central to policy making as setting them right would foster competitiveness and boost economic growth, whereas excess regulation could prove harmful to the economy. Another important focal point of policy makers is the performance of the banking sector, as this is of major significance to the well-functioning of financial markets in particular and the economy in general. Moreover, the recent financial crisis demonstrated that poor bank performance asserts a negative effect on the overall economy due to the systemic financial stability implications and credit constraints. Given the prominence of both regulation and bank performance is not surprising that there has been an extensive literature (Demirgüç-Kunt and Detragiache 1998, Barth et al., 2004;Beck et al., 2006; Pasiouras, 2008; Pasiouras et al., 2009;Barth et al. 2010; Delis et al., 2011, Delis and Staikouras, 2011) 2 , in particular regarding bank specific regulation. However, to the best of our knowledge the impact of wider regulations that could affect the day-to-day bank operations has not been examined. To this end, we fill a gap by studying the impact that ...

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Section: The Impact Of the Control Variablessupporting

confidence: 82%

Does business regulation matter for banks in the European Union?

Kalyvas

Mamatzakis

2014

Journal of International Financial Markets, Institutions and Mo

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“…Based on the high value of log likelihood function, translog specification generally overestimated the cost inefficiency of insurers during [2000][2001][2002][2003][2004] relative to FF specification. These findings are consistent with the bank inefficiency study by Berger and Humphrey (1997) and UAE banks cost efficiency study by Rao (2005), which revealed significant inefficiencies in financial services firms. The results are also in line with the study by Greene and Segal (2004) who reported an average of 20% inefficiency in 136 US life insurers (478 firm years) using translog cost functional form.…”

Section: Stage One Analysissupporting

confidence: 90%

“…These results are in contrast with the impressive business performance of insurers in UAE during 2000 and 2004 discussed in Table 2. Similar findings were seen in UAE banks inefficiency analysis done by Rao (2005).…”

Section: Stage One Analysissupporting

confidence: 86%

Cost efficiency and value driver analysis of insurers in an emerging economy

2008

Self Cite

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This study investigated cost inefficiencies and its relationship with value drivers of insurers in United Arab Emirates (UAE). The study revealed that there were 21-33% cost inefficiencies in these insurers under different model specifications of stochastic frontier and DEA; value drivers such as lower leverage risk, lower capital risk significantly improved cost efficiencies consistent with Basel II norms; ROE positively influenced cost efficiencies with further trade off between increased profit margin, decreased asset utilization and|or reduced equity multiplier by the insurer managements to achieve a target-ROE; and the trend of cost efficiency was improving during 2000-2004. The study suggests that stock insurers could overcome their cost inefficiencies through adoption of efficient measures such as risk mapping of clients, risk prioritization besides ALM techniques. The study has direct implications for individual and institutional investors in making their portfolio investment decisions in insurance sector, policymakers, and regulators to closely monitor inefficient insurers consistent with Basel II norms. Copyright © 2008 John Wiley & Sons, Ltd.

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“…Although developed countries hosted a large share of world FDI, the flow of FDI to developing countries has also increased at a faster rate over the years, rising from US$8 billion in 1980 to US$621 billion in 2008. Of the changes in national regulatory from 1992 to 2005, UNCTAD (2006) reported that 92 percent are favorable to FDI, reflecting that regulations encourage FDI through simplified procedures, enhanced incentives, reduced taxes and greater openness to foreign investors. This remarkable increase in FDI was largely driven by increases in FDI in service sectors, and in particular in financial FDI.…”

Section: Introductionmentioning

confidence: 99%

The economic effects of foreign bank presence: Evidence from the Philippines

Manlagñit

2011

Journal of International Money and Finance

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Cost frontier efficiency and risk-return analysis in an emerging market

Cited by 48 publications

References 27 publications

Does business regulation matter for banks in the European Union?

Does business regulation matter for banks in the European Union?

Cost efficiency and value driver analysis of insurers in an emerging economy

The economic effects of foreign bank presence: Evidence from the Philippines

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