Efficiency and Risk-Taking Behaviour of Ghanaian Banks

Abstract

Purpose – This paper examines the interaction of efficiency and bank risk taking in the Ghanaian banking industry.

Design/methodology/approach – We relate risk taking to price competitiveness, foreign ownership and cost efficiency and other control variables. Cost-inefficiency scores from a stochastic frontier model are used, and a Lerner price index is employed to proxy for market power.

Findings – Our results suggest that market power affects risk taking when conditioned on foreign ownership, but foreign bank risk-taking behaviour is not statistically different from local banks. Cost inefficiency diminishes bank soundness. We also find that industry concentration discourages greater risk taking.

Originality/value – Our study extends the views on risk taking and competition among banks in Ghana, which throws more light from an emerging economy perspective.

Citation

Isshaq, Z., Bokpin, G.A. and Amoah, B. (2012), "Efficiency and Risk-Taking Behaviour of Ghanaian Banks", Menyah, K. and Abor, J. (Ed.) Finance and Development in Africa (Research in Accounting in Emerging Economies, Vol. 12 Part B), Emerald Group Publishing Limited, Leeds, pp. 53-74. https://doi.org/10.1108/S1479-3563(2012)000012B007