The impact of non-traditional activities on the estimation of bank efficiency: International evidence

This paper investigates the relevance of non-traditional activities in the estimation of bank efficiency levels using a sample of 752 publicly quoted commercial banks from 87 countries around the world, allowing comparison of the impact of such activities under different levels of economic developme...

Full description

Saved in:
Bibliographic Details
Published in:Journal of banking & finance 2010-07, Vol.34 (7), p.1436-1449
Main Authors: Lozano-Vivas, Ana, Pasiouras, Fotios
Format: Article
Language:English
Subjects:
Banking system
Commercial banks
Comparative analysis
Cross-national analysis
Economic development
Economic efficiency
Efficiency
Efficiency Non-traditional activities Off-balance sheet Environmental variables Regulatory conditions
Environmental variables
Financial economics
Impact analysis
Non-traditional activities
Off balance sheet items
Off-balance sheet
Profit
Regulatory conditions
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:This paper investigates the relevance of non-traditional activities in the estimation of bank efficiency levels using a sample of 752 publicly quoted commercial banks from 87 countries around the world, allowing comparison of the impact of such activities under different levels of economic development, geographical regions and other country characteristics. We estimate both cost and profit efficiency of banks using a traditional function that considers loans and other earnings assets as the only outputs, and two additional functions to account for non-traditional activities, one with off-balance sheet (OBS) items and the other with non-interest income as an additional output. Controlling for cross-country differences in regulatory and environmental conditions, we find that, on average, cost efficiency increases irrespective of whether we use OBS or non-interest income, although the results for profit efficiency are mixed. Our results also reveal that while the inclusion of non-traditional outputs does not alter the directional impact of environmental variables on bank inefficiency, regulations that restrict bank activities and enhance monitoring and supervision provisions improve both cost and profit efficiency.
ISSN:0378-4266
1872-6372
DOI:10.1016/j.jbankfin.2010.01.006