Guest editorial

Citation

Pasiouras, F. (2009), "Guest editorial", Managerial Finance, Vol. 35 No. 3. https://doi.org/10.1108/mf.2009.00935caa.001

Guest editorial

Article Type: Guest editorial From: Managerial Finance, Volume 35, Issue 3.

This issue of Managerial Finance is dedicated to the efficiency of financial institutions. After a rigorous review process, a total of ten papers were selected. The first five that are country-specific were included in the first part and published in the previous issue. While country-specific studies dominated the literature in the early years, an increasing number of cross-country studies have been published in recent years. For instance, the survey by Berger and Humphrey (1997) identifies only six (out of 130) studies that include institutions from more than one nation. However, in a more recent survey, Berger (2007) reviews over 100 international bank efficiency studies. Yet, a number of issues remain unanswered and further research is required. The present part of this special issue consists of five cross-country studies, and attempts to extend our understanding in relation to bank efficiency differences across countries.

Girardone et al. (2009) use a sample of banks operating in EU-15 to investigate whether ownership, as well as operating in bank- vs market-based countries have an impact on bank efficiency. They find evidence against the agency theory hypothesis that managers of privately-owned banks are more cost efficient than those of mutual banks. As it concerns the financial structure hypothesis according to which in developed financial systems bank efficiency should not be statistically different across bank- vs market-based economies, their results are mixed.

In the second paper, Lozano-Vivas (2009) adopts the model of Kim et al. (2005) to test whether borrowers in the European banking are willing to pay more for higher-quality banking services and products. Furthermore, this study attempts to examine whether or not the market power derived from vertical product differentiation influences the ability of banks to operate efficiently. The author concludes that reduced competition derived from banks' ability to differentiate their services in terms of quality is positive because it helps to provide a more stable banking system. As it concerns market power, it does not appear to prevent the efficient operation of banks.

An increasing number of studies, both at a national and international level, attempt to reveal the determinants of bank efficiency using a two-stage analysis. The common approach is to regress the efficiency scores obtained during the first stage, one a number of explanatory variables, using standard ordinary least squares (OLS) or Tobit regression. However, Coelli et al. (2005), and Simar and Wilson (2007) among others, argue that this approach may lead to biased estimations. In the third paper, Delis and Papanikolaou (2009) compare for the first time the double bootstrapping procedure proposed by Simar and Wilson (2007) with two-stage technique that involves censored regressions in the second stage. Their results show that there are important differences between the two approaches.

The paper by Koutsomanoli-Filippaki et al. (2009) departs from the traditional literature by employing a directional technology distance function approach to measure profit efficiency and decompose it into its technical and allocative components. Their application in the Central Eastern European banking industries indicates that the highest proportion of profit inefficiency is due to allocative inefficiency. The authors also report that banking reform has a positive impact on efficiency in contrast to bank size, the capitalization ratio and market concentration that have a negative influence on efficiency.

The economics and finance literature is rich of studies that discuss the potential effects of foreign direct investments (FDI) on firms and the economy as a whole. However, empirical research on the impact of aggregate FDI on the performance of banks is limited. In the last paper of this special issue, Tanna (2009) discusses a number of issues through which FDI inflows could influence bank productivity. Then, using an international dataset and a combination of the Malmquist productivity index and panel regressions, he documents that inward FDI has a negative short-term level effect but a positive long-term rate effect on total factor productivity change.

In closing the second part of this special issue, I would like to thank for one more time the editor of Managerial Finance, Professor Don T. Johnson, for giving me the opportunity to edit this special issue, and the numerous anonymous referees who devoted their time to review the submitted manuscripts.

Fotios PasiourasSchool of Management, University of Bath, Bath, UK

References

Berger, A.N. (2007), “International comparisons of banking efficiency”, Financial Markets, Institutions and Instruments, Vol. 16, pp. 119-44.Berger, A.N. and Humphrey, D.B. (1997), “Efficiency of financial institutions: international survey and directions for future research”, European Journal of Operational Research, Vol. 98, pp. 175-212.Coelli, T.J., Prasada Rao, D.S., O'Donnell, C.J. and Battese, G.E. (2005), An Introduction to Efficiency and Productivity Analysis, 2nd ed., Springer, New York, NY.Delis, M.D. and Papanikolaou, N.I. (2008), “Determinants of bank efficiency: evidence from a semi-parametric methodology”, Managerial Finance, Vol. 35, No. 3, pp. 260-75.Girardone, C., Nankervis, J.C. and Velentza, E-F. (2009), “Efficiency, ownership and financial structure in European banking: a cross-country comparison”, Managerial Finance, Vol. 35 No. 3, pp. 227-45.Kim, M., Kristiansen, E.G. and Vale, B. (2005), “Endogenous product differentiation in credit markets: what do borrowers pay for”, Journal of Banking and Finance, Vol. 29, pp. 681-99.Koutsomanoli-Filippaki, A., Margaritis, D. and Staikouras, C. (2009), “Profit efficiency under a directional technology distance function approach”, Managerial Finance, Vol. 35 No. 3, pp. 276-96.Lozano-Vivas, A. (2009), “Measuring and explaining the impact of vertical product differentiation on banking efficiency”, Managerial Finance, Vol. 35 No. 3, pp. 246-59.Simar, L. and Wilson, P.W. (2007), “Estimation and inference in two-stage, semi-parametric models of production processes”, Journal of Econometrics, Vol. 136, pp. 31-64.Tanna, S. (2009), “The impact of foreign direct investment on total factor productivity growth: international evidence from the banking industry”, Managerial Finance, Vol. 35 No. 3, pp. 297-311.