Rasoul Rezvanian

An examination of cost structure and production performance of commercial banks in Singapore

Abstract This paper uses a parametric approach in the framework of a translog cost function and a non-parametric approach in the framework of linear programming to examine production performance and cost structure of a sample of Singaporean commercial banks. The results of the parametric methodology suggest that the average cost curve of these banks is U shaped and there are economies of scale for small and medium-size banks. Further analysis provides evidence of economies of scope for all banks regardless of their size. The non-parametric results indicate that the Singaporean banks could have reduced cost by 43% had they all been overall efficient. The sources of this cost inefficiency seem to be caused equally by allocative and technical inefficiencies.

Organizational forms in banking: An empirical investigation of cost efficiency

Abstract This paper compares the relative performance of bank holding company and branch banking organizational forms. Performance is measured by constructing nonparametric frontiers from which measures of overall, allocative, technical, pure technical and scale efficiency can be derived. The results indicate that branch banking is a more efficient organizational form than the bank holding company.

An empirical test of association between production and financial performance: the case of the commercial banking industry

Banks choose the asset and liability mix of their portfolio in order to achieve maximum efficiency and optimal financial position. The purpose of this paper is to investigate the relationship between a banks financial performance, measured by accounting-based ratios, and production performance proxied by efficiency indexes. While the existing literature examines financial ratios and efficiency issues in isolation, it is shown that a significant association between financial and production performances does exist for large commercial banks and that this association is time-sensitive. This finding suggests that efficiency indexes should be considered as a supplement to financial ratios in on-site examination in order to monitor the performance of banking firms more effectively.

Efficiency change, technological progress and productivity growth of private, public and foreign banks in India: evidence from the post-liberalization era

This study uses a nonparametric frontier approach to examine the effects of the ownership on the efficiency, efficiency change, technological progress and productivity growth of the Indian banking industry over the period 1998 to 2003. A host of best practice frontiers are constructed relative to which the performance of foreign-owned banks, private-owned banks and public-owned banks operating in India are assessed. The results indicate that foreign banks are significantly more efficient when compared to other banks, i.e. the privately-owned and publicly owned-banks. The findings also provide evidence to indicate that a large number of Indian banks operate below their optimal scale. Specifically, the Indian banking industry can be characterized by the existence of very few large, but inefficient publicly-owned banks along with many small size banks that would be able to improve their cost efficiency by expanding their scale of operations. Therefore, in order to assist the Indian banking system to function more efficiently and be more competitive in the global marketplace, the Indian policy makers should create policies to encourage private ownership of banks, facilitate the entry of foreign banks and promote mergers and acquisitions among Indian banks. Such policies will help Indian banks increase their scale of operations and improve their cost efficiency.

A Comparative Multiproduct Cost Study of Foreign-Owned and Domestic-Owned US Banks

Significant presence of foreign-owned banks (FOBs) in the US banking markets has raised concerns about concentration of economic and financial power in foreign hands and increased risk exposure of the banking system. The proponents counter that international cost synergies, heightened competition, and improved bank performance resulting from the presence of FOBs justify foreign bank expansion. This paper contrasts the production technologies and the cost characteristics of the FOBs and the domestic-owned banks (DOBs) within a cost minimization context. The hypothesis of identical cost structures between the two groups is tested and rejected. Then, overall and product-specific scale and scope economy measures for the FOBs and the DOBs are derived for the 1992–1994 sample period, relative to the ownership-type-specific cost structures, and contrasted in order to shed light on the ownership-type effect on the cost structure of banks. Differences do manifest themselves between the two groups, but they are small in magnitude. No clear and strong patterns emerge between the ownership type and cost structure of the banks in the sample. These results are consistent with those of the relative efficiency of the FOBs and DOBs found in the literature.

Economics of scale and scope in small depository institutions: Evidence from U.S. cooperative banks

This paper derives the scale and scope economy measures for the U.S. cooperative banks for the years 1989, 1990 and 1991 using the translog cost function. The results suggest that cooperative banks can save costs through increasing their size and diversifying their outputs.

Cost efficiency, technological progress and productivity growth of Chinese banking pre- and post-WTO accession

China has recently taken substantial steps to reform its banking sector, particularly after joining the World Trade Organization (WTO) in December 2001. This study examines the effect of recent banking reforms and WTO accession on the cost efficiency of Chinese banking and the efficiency differentials across different bank ownership groups. We use a nonparametric approach to investigate the efficiency trend and productivity growth of banks between 1998 and 2006 prior to and after joining the WTO. We find that, on average, domestic banks outperform their foreign counterparts over the sample period in terms of overall and allocative efficiencies, but they fall behind in terms of overall technical efficiency. A pre- and post-WTO accession analysis reveals that the efficiency of domestic banks has declined post-accession, while foreign banks have enjoyed an improvement in their cost efficiency post-WTO accession. The findings further suggest that the total factor productivity of Chinese banks has weakened over the period under study. However, total factor productivity has increased for both domestic and foreign banks after China joined the WTO, equally owing to efficiency improvement and technological progress.

Production economies of small depository institutions in the post-FIRREA era: evidence from cooperative banks

To evaluate the effects of the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989 on the cost behaviour of thrift institutions, this study examines the economies of scale and scope of cooperative banks for the years 1992-94. The findings provide evidence of economies of scale and scope over the period under study. In addition, the results suggest the presence of product-specific economies of scale and scope with respect to a few of the products included in the portfolios of the samples. Some policy implications are drawn based on the findings.

Holding company affiliation versus branching by independent banks: A cost analysis for interstate banking

Abstract Prohibition of interstate branching forced nearly all banks interested in interstate expansion to establish holding company affiliations. But it is not clear whether holding-company affiliation or branching by independent banks is preferable for consumers. By contrasting 1994 data of consolidated multibank holding companies with that of independent banks with branches, we assess their relative scale economies and cost advantages by asset size. Our analysis supports the assertion of the U. S. Department of Treasury that expansion through interstate branching would provide immediate cost savings and increase consumer benefits.

Equity Market Reaction to Sharp Price Changes: Evidence from Poland

Abstract We examine investors’ reaction to sharp price changes using two equity market indices in Poland: WIG and WIG20. Using daily market returns for the two indices from April 1991 and April 1994 to November 2012, we identify the event days as the days where market indices exhibited positive or negative daily price changes of 3 percent or more as well as two and three standard deviations from the mean of the market returns. By following the market behaviour through price trend for 30 days after the event days, two conclusions can be reached: (a) The arrival of unexpected news that cause sharp price changes impacts volatility of market indices, and (b) the subsequent price adjustments after the initial sharp price changes take an upward corrective pattern only after the initial negative price changes, but not after positive price changes.