Sok-Gee Chan

Bank Efficiency and Macro-economic Factors: The Case of Developing Countries

Abstract This paper examines the effects of macro-economic factors on bank efficiency of commercial banks in Asia, Middle East/North Africa, and Africa. To achieve the objective, the stochastic frontier approach (SFA) was used to simultaneously estimate the parameters of the stochastic frontier and the inefficiency model. The results show that the effect of macro-economic factors on bank efficiency differs across region. Cost inefficiency of the commercial banks in the Asian region is negatively related to the real gross domestic product per capita, credit to the private sector, and market concentration but is positively related to trade openness. Banks cost inefficiency in the Middle East/North Africa is negatively related to trade openness but is positively related to market concentration suggesting that banking market in this region should be more open to competition.

Efficiency and risk in commercial banking: empirical evidence from East Asian countries

This paper analyses the effects of off-balance sheet (OBS) activities and various types of risks on the cost and profit efficiencies of banks in seven East Asian countries between 2001 and 2008. Cost and profit efficiency scores are estimated using the data envelopment analysis approach. The results of this analysis are then used to identify the impact of OBS activities and risk exposures on cost and profit efficiencies using a Tobit regression. Bank insolvency risk (as measured by z-scores) is positively related to profit efficiency, while interest sensitivity, size, equity to total assets and OBS exposures all impact on cost efficiency. The analysis of the impact of input and output slacks illustrates that in around 1 in 5 cases banks’ cost efficiency can be improved by adjusting the former variables, whereas in only around 1 in 100 cases a similar outcome is possible for profit efficiency.

OFF-BALANCE SHEET ACTIVITIES IMPACT ON COMMERCIAL BANKS PERFORMANCE: AN EMERGING MARKET PERSPECTIVE

Abstract This paper examines the effect of off-balance sheet (OBS) activities on performance of the banks listed on Istanbul Stock Exchange (ISE). We use four measures of performance including bank’s risk exposures, profitability, leverage, and liquidity position. We find that both bank-specific risk and foreign exchange rate risk are positively related with OBS activities. This indicates that OBS activities increase bank-specific and foreign exchange risk exposures of the banks in Turkey. The positive relationship might serve as a warning to bank’s speculative action using OBS transactions in the market. The results also indicate that OBS activities, due to its hedging perception, improve bank’s stock returns but have a negative impact on return on equity. In addition, OBS activities do not have a statistically significant impact on leverage or liquidity.

Bank efficiency, profitability and equity capital: evidence from developing countries

This paper analysed the effects of profitability and equity capital on bank efficiency of commercial banks in the developing countries. To achieve the objectives, the stochastic frontier approach is used in the first stage of the analysis to obtain cost and profit efficiency scores. In the second stage, the efficiency scores obtained are regressed with a measure of banks equity capital and profitability by using the Tobit regression model. The results show that equity to total assets ratio has a negative effect on efficiency indicating that either the use of debts in financing bank operations or less regulatory condition contribute to higher efficiency. The results also found that return on assets have a positive effect on profit efficiency suggesting the needs for efficient utilisation of banks assets.

Mutual funds and market performance: New evidence from ASEAN markets

ABSTRACT The contemporaneous growth in ASEAN financial markets over the last two decades raises empirical questions regarding the role of institutional investors in financial market performance. Our study examines the dynamic relationship of aggregate mutual fund flows with market performance variables, i.e. stock market returns and volatility in ASEAN financial markets. Findings suggest that equity and balanced flows have a positive (negative) relationship with market returns (volatility), whereas bond and money market flows have a negative (positive) linkage with market returns (volatility). Furthermore, equity and balanced mutual funds contribute towards reducing market volatility. In addition, mutual funds respond concurrently to risk-related information as compared to returns-related information in the stock market. We also identify that risky securities have a stronger relationship with the market variables than less risky securities do. Moreover, investors direct flows away from equity-based funds to fixed income-type funds in times of high market risk.

Government Spending Efficiency on Economic Growth: Roles of Value-added Tax

Abstract This study examines the impact of government spending efficiency on the economic growth of 115 countries with value-added tax (VAT) system. We seek to examine the moderating role of the VAT system on the relationship between public spending efficiency and the economic growth. Using Generalized Method of Moments estimation based on two-step estimate, we found (1) government spending efficiency promotes economic growth, (2) the VAT system is found to enhance the effect of an efficient government spending on the economic growth and (3) the moderating role of the VAT system is further enhanced by quality of democracy and legislative strength of the government.

Effect of Foreign Shareholdings and Originating Countries on Banking Sector Efficiency

ABSTRACT We analyze how foreign shareholdings affect the ASEAN-5’s banking sector efficiency using stochastic frontier analysis. Unlike most extant studies, which compare the performance of local and foreign banks, we assess how foreign shareholdings affect bank efficiencies. We also apply resource-based theory to analyze whether the foreign shareholdings’ countries of origin matter. We find that foreign shareholders from more developed countries enhance the bank’s resource base. Those from Asia have the greatest effect, perhaps because of their proximity and familiarity. Moreover, excessive regulation stifles the host countries’ profit efficiency potential. Finally, foreign shareholding concentration potentially enhances efficiencies by reducing agency costs.

The Chinese banks’ directors and their risk-taking behavior: A corporate governance and finance perspective

Purpose The purpose of this paper is to examine the impact of the directors’ socioeconomic backgrounds on the risk-taking behavior of the listed commercial banks in China. Design/methodology/approach The generalized least square method and Arellano and Bover’s (1995) generalized method of moment were used to study the relationship between the directors’ socioeconomic backgrounds and bank risk-taking behavior. The sample studied consists of 16 listed commercial banks in China from 2003 to 2011. Findings It was found that smaller board sizes and higher percentage of independent directors contribute to lower risk-taking. The results also indicate that banks are better off with boards that have gender diversity, government affiliation and higher average age because they enhance problem-solving and market insights facilitate adherence to government or regulatory policies and help reduce the banks’ risks. Research limitations/implications Future studies may consider including non-public-listed banks, pre-2003 data and analyses of the agencies to which the government-affiliated directors are or were attached. Practical implications The paper suggests that corporate governance reform initiatives with closely monitored implementation and phased liberalization contributed toward the banking industry’s resilience. Implications for management include that boards of directors with better quality, sufficient independence, gender diversity, government affiliation and maturity will help reduce risks. Social implications This study may facilitate the decision-making for the bank management and policymakers on the selection of best directors in the Chinese banking sector. The Chinese banking system serves as a plausible role model for consideration, given that four of its banks have now leapfrogged to be among the top ten largest banking institutions after the global financial crisis. Originality/value The study covers a wide range of socioeconomic backgrounds of the board of directors which are crucial in influencing the behavior of the board in banking operations.

The inequality of the provinces in China: A productivity analysis

Abstract—This paper intends to address the issue of the inequality in the economy development in China with the use of Total Factor Productivity in analyzing the productivity and efficient used of resources. The study focuses on regional analysis to determine the inequality patterns among the provinces in China with the objective to address the issues of inequality among the provinces in China which my dampened the economic development in the country. The sample of the study consist of 30 provinces in China starts from year 1978 to 2008 in order to investigate the economic efficiency and productivity change of the Chinese’s economy after the China reformation in 1978. The results show that the Eastern region is relatively more efficient as compared to the Western and Central region in China. Results further found that the main contributor of economic inefficiency in China is mainly due to pure technical inefficiency. The technological change plays is found to play an important role in providing a road for sustainable economy development in China.