What determines differences in foreign bank efficiency? Australian evidence

Jan Egbert Sturm, Barry Williams*

*Corresponding author for this work

Research output: Contribution to journalArticleResearchpeer-review

25 Citations (Scopus)

Abstract

This study examines the factors that determine differences in efficiency of foreign banks in the host market (Australia). The impact of home market, host market and parent bank characteristics are considered within the frameworks offered by comparative advantage and new trade theories. Parametric distance functions are used to estimate the efficiency of foreign banks in Australia, and the robustness of model specification is tested using both general-to-specific modelling and extreme bounds analysis. It is found that following clients reduces the efficiency of profit creation. Incumbent bank's market share acts as a barrier to entry, while parent bank profits do not improve host nation efficiency. The limited global advantage hypothesis was found to be relevant for banks from the United Kingdom, while banks from the United States were generally less efficient.

Original languageEnglish
Pages (from-to)284-309
Number of pages26
JournalJournal of International Financial Markets, Institutions and Money
Volume20
Issue number3
DOIs
Publication statusPublished - Jul 2010

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