Literature Review of Bank Efficiency Essay

Measuring the efficiency and productivity of banking firms has been playing a predominant role in helping managers or regulators to achieve a better understanding of the success or failure of policy strategies and make better decisions. Furthermore, the evaluation results of efficiency are also of major importance to stock owners, depositors and investors. The influence of ownership on cost and profit efficiencies The situation is similar in transition countries. Bonin et al. 2005) investigated 11 transition countries and claimed that private ownership was not sufficient to increase bank efficiency as they did not find enough evidence to prove that private owned banks are more efficient than government owned banks, which is consistent with Altunbas’s conclusions. Additionally, Bonin et al. (2005) also found evidence that foreign owned banks, especially those with strategic owners, were associated with greater cost efficiency and better services. In contrast with the Bonin’s viewpoints, Lensink et al. (2008) suggested that normally the foreign owned banks tended to show disadvantages in bank efficiency. However, to what extend the statement is true is associated with the host and home country conditions. The first factor to be mentioned is the quality of the home country governance: the foreign owned banks turn out to operate more efficiently if the institutions in the home county are with higher quality. Another significant element to be illustrated is the influence of distance: the smaller institution distances between the host and home counties, the greater the efficiency of the foreign owned banks. The conclusion that high similarities between the host and home country institutions would reduce foreign bank inefficiency is the third element to be noted.