Foreign bank efficiency in Australia: what makes a difference?

Jan Egbert Sturm, Barry Williams

Research output: Contribution to journalArticleResearchpeer-review

5 Citations (Scopus)

Abstract

Purpose – The purpose of this paper is to explore the factors that affect differences in measured efficiency of foreign-owned banks operating in Australia. The relevance of both comparative advantage theory and new trade theory to multinational banking in Australia will be tested. Design/methodology/approach – A three stage research method is employed. First, estimates of foreign bank efficiency are drawn from a larger sample of domestic and foreign banks in Australia. Efficiency is estimated using parametric distance functions, applying several different specifications of inputs and outputs. Second, factor analysis is used to estimate a series of common factors drawn from the above theories. Third, general to specific modelling is used to determine which of the factors from the second stage determine differences in foreign bank efficiency. Findings – Following clients (defensive expansion) was found to increase host nation efficiency, and new trade theory tended to, (but not conclusively), dominate comparative advantage theory. The limited global advantage hypothesis was found to apply for US bank revenue creation efficiency, but not for transformation of physical inputs into outputs. Banks from the UK and Japan were also found to display superior revenue creation efficiency. Competitor market share reduces host nation efficiency and positive parent bank attributes such as size, credit rating and profits are associated with lower host nation efficiency, as is home nation financial development. Originality/value – This is the first study that has used a combination of factor analysis and general to specific modelling to study determinants of foreign bank efficiency in the host nation.

Original languageEnglish
Pages (from-to)180-201
Number of pages22
JournalManagerial Finance
Volume35
Issue number2
DOIs
Publication statusPublished - 16 Jan 2009

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Foreign banks
Bank efficiency
Modeling
General-to-specific
Factor analysis
New trade theory
Comparative advantage
Revenue
Factors
Common factors
Distance function
Profit
Design methodology
Competitors
Financial development
Multinational banking
Credit rating
Research methods
Japan
Market share

Cite this

Sturm, Jan Egbert ; Williams, Barry. / Foreign bank efficiency in Australia : what makes a difference?. In: Managerial Finance. 2009 ; Vol. 35, No. 2. pp. 180-201.
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Foreign bank efficiency in Australia : what makes a difference? / Sturm, Jan Egbert; Williams, Barry.

In: Managerial Finance, Vol. 35, No. 2, 16.01.2009, p. 180-201.

Research output: Contribution to journalArticleResearchpeer-review

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