Efficiency measurement. A methodological comparison of parametric and non-parametric approaches.

The thesis examines technical efficiency using frontier efficiency estimation techniques from parametric and non-parametric approaches. Five different frontier efficiency estimation techniques are considered which are SFA, DFA, DEA-CCR, DEA-BCC and DEA-RAM. These techniques are then used on an artificially generated panel dataset using a two-input two-output production function framework based on characteristics of German life-insurers. The key contribution of the thesis is firstly, a study that uses simulated panel dataset to estimate frontier efficiency techniques and secondly, a research framework that compares multiple frontier efficiency techniques across parametric and non-parametric approaches in the context of simulated panel data. The findings suggest that, as opposed to previous studies, parametric and non-parametric approaches can both generate comparable technical efficiency scores with simulated data. Moreover, techniques from parametric approaches, i.e. SFA and DFA are consistent with each other whereas the same applies to non-parametric approaches, i.e. DEA models. The research study also discusses some important theoretical and methodological implication of the findings and suggests some ways whereby future research can enable to overcome some of the restrictions associated with current approaches

The impacts of deregulation on the Jordanian banking sector 1993–2006: an empirical analysis using frontier approaches

During the period 1993–2006 the Central Bank of Jordan (CBJ) undertook a series of measures to deregulate its banking system. Key procedures included the removal of restrictions on interest rates, expansion of scope of banks' products and services, lifting of restrictions on foreign exchange transactions and the reduction of barriers to entry of foreign investors and foreign banks. The main aims of deregulation were to promote a diversified, efficient and competitive banking system in order to improve resource allocation, financial viability and operational flexibility. A data set from the CBJ comprising all the Jordanian banks, covering the time period 1993–2006 was used to examine whether the efficiency of Jordanian banks has improved (or changed) over this time period. To this end, a parametric approach, stochastic frontier analysis (SFA), and a nonparametric approach, data envelopment analysis (DEA), was used to measure the efficiency scores of Jordanian banks over the period 1993–2006. [Continues.

Efficiency and productivity analysis of deregulated telecommunications industries: a comparative study of the cases of Canada and Nigeria

Following telecommunications industry deregulation in United Kingdom and the introduction of competition in the United States of America's long distance telecommunications services in the 1980s, telecommunications industries in other developed and developing countries have been deregulated. Contributing to the deregulation are the influences of globalization, technological advancement, fiscal policy restraint, lending institutions' requirements, regulatory costs curtailment and the desire for improved performance. However, the benefits of deregulation remain uncertain. The motivation for this research is to investigate the efficiency and productivity performance of telecommunications industries in deregulated environments. Comparatively analyzing the experiences of Canada and Nigeria, this research addresses two broad questions. First, how did deregulatory policies influence competitiveness in the industries in the two countres? This was addressed by: (i) investigating the forces that drove deregulation, (ii) exploring the similarities and differences in the deregulatory milieu in the two countries, and (iii) evaluating competitiveness in the industry. Second, how did the industries perform in the deregulated environments? The outcomes shed lights on the efficiency, productivity and the influence of environmental factors on efficiency performance. It also imbues the applicability of structure-conduct-performance model in the understanding of deregulatory outcomes. The approach adopted entailed empirical analysis of the two countries in the context of 17 other telecommunications industries from High Income Countries and Middle Income Countries over a 13-year period (2001–13). The study used non-parametric Data Envelopment Analysis (DEA) and the Malmquist Productivity Index to assess the efficiency and productivity changes and a random effect (RE) panel Tobit model was used to evaluate the effect of environmental factors on efficiency performance. Furthermore, responses from industry participants were obtained to complement the DEA findings. The DEA results suggest that operating in deregulated environment improves efficiency and productivity performance; a finding validated by the views of the industry participants involved in the study. The two countries, though inefficient, showed improved technical efficiency. The productivity analysis revealed both countries experienced productivity growth but it has slowed. Also, the Mann-Whitney test showed that the two countries have comparable productivity change. The Canadian telecommunications industry experienced technological progress and efficiency improvement, but the productivity change was mainly due to efficiency improvement attained through managerial effectiveness. On the other hand, the Nigerian telecommunications industry experienced technological retardation but efficiency progression. Its productivity change was due to efficiency improvements attained through enhanced operational scale. The investigation of the influence of environmental factors on efficiency reveals that the number of years in deregulation has an insignificant negative influence on technical and scale efficiency. However, as a quadratic term, the effect is positive but remained insignificant. Revenue per subscription positively influences technical and scale efficiencies and is statistically significant. This indicates that higher prices may result in better technical efficiency and operational scale. Industry concentration level was found to have a positive but not statistically significant effect on technical and scale efficiencies and a negative but also statistically insignificant effect on pure technical efficiency. This signifies that telecommunications industry concentration is not consequential to performance. Capital expenditure to revenue ratio has no significant influence on technical efficiency but a statistically significant negative influence on scale efficiency. This signifies that scale efficiency could be attained by optimizing capital expenditure through full capacity utilization and by avoiding infrastructure duplication. Labour productivity influences technical efficiency but has an unimportant negative effect on scale efficiency. This implies that technical efficiency could be enhanced through labour productivity improvements. Also, change in real gross domestic product per capita has a negative and insignificant effect on technical and scale efficiencies. However, as a quadratic term, it has significant positive influence on scale efficiency, suggesting that countries with higher economic growth and wealth would display better scale efficiency performance. Inflation has significant positive influence on technical and scale efficiency performance. The level of development has insignificant relationship with technical and scale efficiency scores, implying that it is not an essential determinant of performance. The interaction of labour productivity and capital intensity undermines technical efficiency, signifying that efficiency improvement through labour productivity and increased use of capital is not sufficient to neutralize efficiency loss from increased capital intensity

Development of the Chinese financial system and reform of Chinese commercial banks

Comprehensive economic reform in China from 1978 has introduced profound restructuring of its financial system, in particular the banking sector. Recent initiatives have focused on ownership transformation via foreign participation and stock listing. China's stock markets have reacted highly positively to the Initial Public Offering (IPO) of Chinese commercial banks. As stock listing has been considered as an effective tool to enhance the corporate governance of the firms, a case study using China Construction Bank (CCB) had been conducted to get a more detailed understanding of in what aspects had the corporate governance of the listed banks been enhanced after IPO? By comparing the annual reports of CCB from 1999 to 2008, I found that the bank had made quite profound and comprehensive changes since its IPO in 2005. In all major areas required by the corporate governance principles, the CCB had displayed a very high level of compliance although flaws in some fundamental aspects still existed. Since the end of 2007, the US credit crunch had induced turmoil in the global financial market that caused the collapse of several world banking giants. Nonetheless, Chinese commercial banks had stood apart from the rest of the world and achieved remarkable results. With improved corporate governance, we further tested whether the banks' performance had been enhance after IPO? Meanwhile, the influence of the financial crisis to China's financial market and the future reform of its banking sector had also been addressed in this thesis. Employing data of 14 listed Chinese banks for the period 1999 to 2008, we applied both Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA) to test our hypotheses. Our findings suggested that stock listing indeed could enhance the pure technical efficiency of the banks by about 5% and also improve their scale economies. A major contribution of this thesis is that it is the first study in English to employ two different frontier approaches to evaluate the effectiveness of IPO on the efficiency of Chinese banks. It also contributes to the growing literatures on the corporate governance issues related to IPO and firm performances, in particular under the background of China

Ethical banking and finance : a theoretical and empirical framework for the cross-country and inter-bank analysis of efficiency, productivity, and financial performance

Islamic banking is a growing worldwide phenomenon involving a variety of institutions and instruments. Previously, Islamic banks? transactions made up a small part of the total banking industry. Recently, Islamic banks have significantly expanded their network, and have been able to mobilize a large amount of funds and upgrade many economic ventures. Given the unique behavior of Islamic banks and their involvement in both social and economic activities, there has always been a question about their long run financial sustainability, particularly in adverse market conditions. Thus, a reliable and unbiased estimation of Islamic banks?efficiency and productivity performance is essential for the evaluation of Islamic banking operations within and outside its traditional borders of Muslim economies. Due to the short history of Islamic banking in Europe, and consequently the lack of sufficient data, empirical researches on the financial performance of Islamic banking have concentrated primarily in Muslim-majority countries and focused on the theoretical issues and descriptive statistics rather than rigorous statistical and econometric estimation. The main purpose of our analysis is to bridge this gap in the global and cross-country literature and to contribute to the ongoing debate regarding the performance of Islamic banking. Therefore, the orientation of this thesis is chiefly quantitative in nature. The aim of this thesis is primarily to shed some light on the emergence and the continual global growth of Islamic banking all over the world. It also tries to assess, for the first time, the relative performance of Islamic commercial and investment banks operating in Europe against counterparties-conventional banks in Europe and also against Islamic banks from Muslim-majority countries. Our methodology in this academic work clearly differs from the literature researches. This thesis is, basically, divided into two main parts. In first part, we specifically discuss the basic features and principles of the Islamic banking and finance. We then reviewed several in-depth market analysis results concerning Islamic banking and finance that were performed by well-known specialized financial institutions. In the second part, we primarily utilize different empirical approaches to examine the performance of our sample banks which shows a great variety, ranging from large active banks to new and small banks. More specifically, we use the Data Envelopment Analysis (DEA) method to calculate the commercial banks? efficiency scores and investment banks (cost)-X-efficiency levels; the DEA-based Malmq- uist Productivity Index (MPI) to estimate the banks productivity indices; the common financial ratios to measure the banks financial performance; the T-Test to determine the differences of investment bank's performance pre- and post- the financial crisis that hit the world?s economy in 2007; the Ordinary Least Squares (OLS)-regression to determine the impact of internal and external factors on bank's efficiency and also to check the robustness of the overall results obtained from DEA scores; Spearman's rho correlation to investigate the association of the DEA-efficiency scores with the traditional accounting ratios; and eventually the efficiency?profitability matrix in order to determine the characterization of the banks' performance and the factors that influence efficiency. Our analysis is carried out, primarily, over the period from 2005 to 2008. This indeed helps to account for the impact of the recent financial crisis on the efficiency and productivity performance of the selected banks. The preliminary review of the market surveys-based analysis shows that the Islamic finance and banking is one of the fastest growing sectors in the financial world. Islamic financial products and services are increasingly being regarded as a viable investment opportunity, making them very attractive for Muslims and non-Muslims alike. Leading Islamic banks from Muslim countries are expanding their network. Several European banks have directly involved in providing Islamic financial products in order to satisfy the special needs for Muslim customers and the non-Muslims who seek ethical financial and investment solutions. Eventually, European governments have also started to amend their legal, tax, and regulatory systems to allow the establishment of Islamic banks. Most importantly, from an empirical point of view, our presented results suggest that the Islamic commercial banks in Europe are found to be relatively technically inefficient. They have also, on average, poor financial performance and under-performing practices. Moreover, Islamic banks in Europe actually suffer from significant productivity losses over the sample years driven, to a large extent, by the regress in banks? technology innovations. By and large, the bank?s inefficiency stems from both the sub-optimal size of operations and the lack of management knowledge and skills. Findings suggest that the optimal size for Islamic banks to achieve better levels of performance is neither large nor small rather medium. Therefore, increasing banks size through mergers and acquisition will substantially enhance their technical efficiency and productivity progress. The period prior to the current financial crisis was marked by the most stable economic environment for generations. Our results illustrate that Islamic banks lag relatively, before the emergence of the crisis, behind their conventional peers in terms of estimated efficiency scores and productivity changes. Strikingly, conventional banks gradually lose their superiority over Islamic banks in subsequent years, but remain, on average, a head of Islamic banks. Islamic banks are, indeed, less vulnerable to the effects of the crisis as compared with counterparties-conventional banks. They exhibit only slight inefficiency and productivity regress during this severe crisis and therefore, produce a consistent and remarkable positive trend in technical efficiency, productivity performance, and financial profitability. This might be because of the beliefs in the power of petro-dollars in the Gulf region, the fact that the Islamic banks are relatively small and young at present, and could also be due to the religious financial constraints. Such factors might have played an important role in preventing Islamic banks from being severely affected by the crisis. Overall, results suggest that the small and new Islamic banks in Europe can be as efficient and productive as large and old Islamic and conventional banks. They also have long run sustainability, substantial room for improvements, and a great potential in the banking industry to sustain their competitive edge not only in Muslim countries but also in the European financial system. The estimated findings pertaining to the performance of Islamic investment banks in Europe suggest that these banks experience low (cost)-x-efficiency and poor allocative-efficiency compared with counterparties-conventional banks. Bank?s inefficiency is caused largely by the under-utilization of inputs, the bank's diseconomies of scale, and also appears to be due to the regulations not controlled by management due to fluctuations and instability in factor prices. Islamic investment banks additionally show a clear paradox between their high calculated efficiency scores and low achieved profitability ratios. They are also less risky, more solvent, and operate with lower use of debt. Nevertheless, Islamic investment banks suffer a gradual deterioration in liquidity position. The banks' supply of Murabaha (cost-plus loans) financing appears to be most dominant and has increased significantly in importance. Overall, findings seem to reveal that the banks that are technically more efficient are larger in size (total assets), financially more profitable, have greater loans intensity, acquire lower levels of debt, invests more in appropriate human skills, have a lower market share (total deposits), and operate in countries with higher GDP-per capita. Such results reflect the strong and high association between the DEA-efficiency measures and the standard accounting measures, suggesting that the DEA approach can be adopted separately or concurrently along with financial ratios to make comparisons of Islamic banks performance more robust.Das Islamische Bankwesen ist ein weltweit wachsendes Phänomen mit einer Vielzahl von Institutionen und Instrumenten. In der Vergangenheit bildeten die Islamischen Bankgeschäfte einen kleinen Teil der gesamten Bankindustrie. In letzter Zeit haben Islamische Banken ihr Netzwerk jedoch erheblich erweitert und konnten eine Vielzahl an Geldmitteln mobilisieren und viele wirtschaftliche Vorhaben verbessern. Angesichts des außergewöhnlichen Verhaltens der islamischen Banken und ihrer Beteiligung an sozialen und wirtschaftlichen Aktivitäten wurde ihre langfristige Wirtschaftlichkeit häufig in Frage gestellt, insbesondere bei ungünstigen Marktbedingungen. Somit ist eine zuverlässige und neutrale Einschätzung der Effizienz und Produktivitätsentwicklung der islamischen Banken für die Bewertung ihrer Operationen innerhalb und außerhalb traditioneller Grenzen islamischer Volkswirtschaften erforderlich. Aufgrund der noch jungen Geschichte des islamischen Bankwesens in Europa und dem einhergehenden Mangel an Daten haben sich empirische Forschungen über die finanzielle Leistungsfähigkeit des islamischen Bankwesens in erster Linie auf Länder mit muslimischer Mehrheit und theoretische Fragen sowie deskriptive Statistiken anstelle von ökonometrischen Methoden konzentriert. Das Hauptziel unserer Analyse ist es diese Lücke in der globalen und länderübergreifenden Literatur zu überbrücken und zu der laufenden Debatte über die Leistungsfähigkeit islamischer Banken beizutragen. Folglich ist die Ausrichtung dieser Dissertation in erster Linie quantitiver Natur. Das Ziel dieser Dissertation ist es etwas Licht in die Entstehung und in das kontinuierliche globale Wachstum des islamischen Bankwesens zu bringen. Die Dissertation versucht außerdem, zum ersten Mal überhaupt, die relative Leistungsfähigkeit der in Europa tätigen islamischen Geschäfts- und Investmentbanken im Vergleich zu konventionellen Banken und zu islamischen Banken in Ländern mit muslimischer Mehrheit zu beurteilen. Die Methodik dieser wissenschaftlichen Arbeit unterscheidet sich deutlich von der Literaturrecherche. Im Grunde ist diese Dissertation in zwei Hauptteile gegliedert. Im ersten Teil werden die grundlegenden Merkmale und Grundsätze des islamischen Bank- und Finanzwesens besprochen. Daraufhin werden mehrere tiefgründige Ergebnisse von Marktanalysen, welche von nahmhaften spezialisierten Finanzinstituten durchgeführt worden sind und das islamische Bank-und Finanzwesen betreffen, überprüft. Im zweiten Teil verwenden wir in erster Linie verschiedene empirische Ansätze, um die Leistung der von uns gewählten Banken zu untersuchen. Diese sind sehr vielfältig und reichen von Großbanken bis hin zu kleinen neuen Banken. Genauer gesagt verwenden wir die Data Envelopment Analysis (DEA)-Methode, um die Effizienz-Ergebnisse der Geschäftsbanken und die (Kosten)-X- Effizienzlevel der Investmentbanken zu berechnen; den auf DEA-basierenden Malmquist Produktivitätsindex (MPI) um die Produktivitätsindizes der Banken zu schätzen; die gängigen Finanzkennzahlen um die finanzielle Leistungsfähigkeit der Banken zu messen; den T-Test, um die Unterschiede der Leistungsfähigkeit der Investmentbanken vor und nach der Finanzkrise, welche die Weltwirtschaft im Jahr 2007 getroffen hat, zu bestimmen; die Ordinary Least Squares (OLS)?Regression, um die Auswirkungen von internen und externen Faktoren auf die Effizienz von Banken zu bestimmen, aber auch um die Robustheit der generellen Ergebnisse der DEA-Ergebnisse zu testen; Spearmans Rangkorrelationskoeffizient um die Verbindung der DEA-Effizienz-Ergebnisse mit den traditionellen Bilanzkennzahlen zu untersuchen; und schließlich die Effizienz-Rentabilitätsmatrix, um die Performance von Banken sowie die Faktoren, welche die Effizienz beeinflussen, zu charakterisieren. Die Analyse wurde hauptsächlich über den Zeitraum von 2005 bis 2008 durchgeführt. Hierdurch können die Auswirkungen der jüngsten Finanzkrise auf die Effizienz und Produktivität der ausgewählten Banken bestimmt werden. Die einleitenden Untersuchungen der auf Marktumfragen basierenden Analyse zeigen, dass das islamische Finanzwesen einer der am schnellsten wachsenden Sektoren der Finanzbranche ist. Die islamischen Finanzprodukte und Dienstleistungen werden zunehmend als eine rentable Investitionsmöglichkeit angesehen, was sie sehr attraktiv für Muslime und Nichtmuslime gleichermaßen macht. Führende islamische Banken aus muslimischen Ländern erweitern ihr Netzwerk. Mehrere europäische Banken sind direkt an der Bereitstellung islamischer Finanzprodukte beteiligt, um die speziellen Bedürfnisse der muslimischen Kunden zu befriedigen sowie die von nicht-Muslimen, die ethische Finanz- und Anlagelösungen suchen. Schließlich haben auch die europäischen Regierungen damit begonnen, ihre rechtlichen, steuerlichen und regulatorischen Systeme zu ändern, um die Einrichtung von islamischen Banken zu ermöglichen. Am wichtigsten, aus empirischen Gesichtspunkten, ist das vorgestellte Ergebnis, dass islamische Geschäftsbanken in Europa technisch relativ ineffizient sind. Sie haben außerdem, im Durchschnitt, schlechte finanzielle Leistungen und leistungsschwache Aktivitäten. Des Weiteren leiden islamische Banken in Europa über die betrachteten Jahre an einem signifikanten Produktivitätsverlust, der zu einem großen Teil von einem Rückschritt bei den technischen Innovationen der Banken getrieben wird. Im Großen und Ganzen beruht die Ineffizienz der Banken auf einer suboptimalen Geschäftsgröße sowie einem Mangel an Managementwissen und ?fertigkeiten. Die Ergebnisse weisen darauf hin, dass die optimale Größe islamischer Banken, um bessere Leistungsniveaus zu erzielen, weder zu groß noch zu klein ist. Deshalb führt eine Erhöhung der Bankengröße durch Fusionen und Akquisitionen zu einem wesentlichen Anstieg der technischen Effizienz sowie des Produktivitätsfortschrittes. Die Zeit vor der heutigen Finanzkrise war durch das stabilste wirtschaftliche Umfeld seit Generationen gekennzeichnet. Die Ergebnisse zeigen auf, dass die islamischen Banken, vor Ausbruch der Krise, im Hinblick auf die geschätzten Effizienz-Ergebnisse und Produktivitätsveränderungen relativ zu ihren konventionellen Peers zurückgeblieben sind. Auffallend ist, dass die konventionellen Banken in den Folgejahren allmählich ihre Überlegenheit gegenüber islamischen Banken verlieren, im Durchschnitt jedoch vor islamischen Banken bleiben. Die islamischen Banken sind, im Vergleich mit konventionellen Banken, in der Tat weniger anfällig für die Auswirkungen der Krise. Diese weisen während dieser schweren Krise nur geringe Ineffizienzen und Produktivitätsrückgange auf und erbringen daher einen konstanten und bemerkenswert positiven Trend hinsichtlich technischer Effizienz, Produktivitätsentwicklung und finanzieller Rentabilität. Dies könnte der Fall sein, da der Glaube an die Macht des Petrodollar der Golfregion sehr hoch ist, sowie die Tatsache, dass die islamischen Banken derzeit relativ klein und jung sind. Ein weiterer Grund könnten die religiös begründeten finanziellen Zwänge sein. Solche Faktoren könnten eine wichtige Rolle dabei gespielt haben, dass islamische Banken kaum von der Krise getroffen wurden. Im Großen und Ganzen weisen die Ergebnisse darauf hin, dass die kleinen und neuen islamischen Banken in Europa genauso effizient und produktiv wie große und alte islamische sowie konventionelle Banken sein können. Sie weisen außerdem langfristige Nachhaltigkeit, erheblichen Spielraum für Verbesserungen sowie ein großes Potenzial in der Finanzindustrie auf, ihre Wettbewerbsfähigkeit nicht nur in muslimischen Ländern, sondern auch im europäischen Finanzsystem aufrechtzuerhalten. Die geschätzten Ergebnisse bezüglich der Leistung islamischer Investmentbanken in Europa weisen darauf hin, dass diese Banken über geringe (Kosten)-X-Effizienz und eine schlechte allok-ative Effizienz im Vergleich zu konventionellen Banken verfügen. Die Ineffizienz der Banken wird weitgehend durch die Unterauslastung der Inputs verursacht, durch die Größennachteile der Bank und, wie es scheint, auch aufgrund der vom Management nicht kontrollierten Regulierungsvorschriften, die angesichts von Fluktuationen und der Instabilität von Faktorpreisen existieren. Die islamischen Investmentbanken offenbaren zusätzlich einen deutlichen Widerspruch zwischen ihren hohen Effizienz-Ergebnissen und ihren niedrigen Rentabilitätskennzahlen. Sie sind außerdem weniger riskant, zahlungsfähiger und arbeiten mit geringerem Einsatz von Fremdkapital. Dennoch erleiden islamische Investmentbanken eine allmähliche Verschlechterung ihrer Liquiditätssituation. Das Bankenangebot der Murabaha-Finanzierung (Kostenaufschlag-Darlehen) scheint sehr beherrschend zu sein und hat deutlich an Bedeutung gewonnen. Insgesamt scheinen die Ergebnisse zu zeigen, dass Banken, die technisch effizienter sind, zum einen größer sind (Gesamtvermögen), profitabler sind, eine höhere Kreditintensität aufweisen, über eine geringere Fremdkapitalaufnahme verfügen, mehr in zweckmäßige Mitarbeiterfähigkeiten investieren, einen niedrigeren Marktanteil besitzen (Gesamteinlagen), sowie in Ländern mit höherem Pro-Kopf-Einkommen tätig sind. Diese Ergebnisse reflektieren die starke Verbindung zwischen den DEA-Effizienz Maßen und den üblichen Maßen des Rechnungswesens. Dies weist darauf hin, dass der DEA-Ansatz getrennt oder auch zusammen mit Finanzkennzahlen übernommen werden kann, um die Vergleiche der Performance islamischer Banken robuster zu machen

Determinants and results of Corporate Social Responsibility as a stakeholder engagement tool

Dada la relevancia que han ido adquiriendo las actividades de Responsabilidad Social Corporativa (RSC) en el mundo empresarial, acentuadas en el año 2015 con la definición de los 17 Objetivos de Desarrollo Sostenible (ODS), se entiende la necesidad de estudiar la implicación y el efecto que tienen estas actividades en los stakeholders que lo rodean. Para ello, y con el objetivo de analizar los determinantes y resultados de la RSC como una herramienta de stakeholder engagement, se realiza un estudio en el que, además de conocer el estado de la literatura sobre el tema, se plantea el papel de la RSC como mecanismo para mejorar ciertas actitudes de los trabajadores, se estudian cómo las diferentes características idiosincráticas de los CEO pueden influir en el nivel de divulgación de los ODS y, finalmente, qué efecto tiene la RSC en el rendimiento empresarial

Organisational form, risk-taking, and performance: an empirical study of UK unit trust companies

Following privatisations in the 1980's, the UK financial industry embarked on a series of demutualisations, which developed into a global trend in the late 1990's. This structural shift has generated numerous debates in academic circles concerning various managerial issues of mutual versus stock owned companies. Informed by agency theory, this thesis contributes to this debate by exploring the link between ultimate organisational form and the behaviour of companies in the UK unit trust industry. The UK unit trust fund industry provides an excellent environment to explore this line of research because ultimate organisational form varies, and because the intra-industry variations are far smaller than those of other industries in term of regulations, income structure, and the use of information technology. For the purpose of analysis, the thesis compares unit trust management companies belonging to mutual and stock owned groups along three dimensions: (i) risk-taking and (ii) efficiency at the corporate level, and (iii) quality of their products, e. g. risk and fee adjusted performance of unit trusts that the companies offer. To this end, a number of quantitative analyses are undertaken, including Tobit regression and Data Envelopment Analysis (DEA), using data from a sample of 130 unit trust management companies for the financial year 1999-2000. The results support the agency theory hypothesis, revealing that at the corporate level, stock owned companies show higher managerial efficiency than the mutual counterparts whilst undertaking higher risk activities than the comparable mutual companies. Nonetheless, at the product level, no difference is found by ultimate ownership type with regard to risk-fee-adjusted performance of unit trusts. The latter indicates that competitive product markets remove the performance distinctions between mutuals and proprietary companies. Overall, these findings suggest that mutual organisations exhibit weaker cost control in conducting unit trust business via their affiliated companies

Organisational form, risk-taking, and performance: an empirical study of UK unit trust companies

Following privatisations in the 1980's, the UK financial industry embarked on a series of demutualisations, which developed into a global trend in the late 1990's. This structural shift has generated numerous debates in academic circles concerning various managerial issues of mutual versus stock owned companies. Informed by agency theory, this thesis contributes to this debate by exploring the link between ultimate organisational form and the behaviour of companies in the UK unit trust industry. The UK unit trust fund industry provides an excellent environment to explore this line of research because ultimate organisational form varies, and because the intra-industry variations are far smaller than those of other industries in term of regulations, income structure, and the use of information technology. For the purpose of analysis, the thesis compares unit trust management companies belonging to mutual and stock owned groups along three dimensions: (i) risk-taking and (ii) efficiency at the corporate level, and (iii) quality of their products, e. g. risk and fee adjusted performance of unit trusts that the companies offer. To this end, a number of quantitative analyses are undertaken, including Tobit regression and Data Envelopment Analysis (DEA), using data from a sample of 130 unit trust management companies for the financial year 1999-2000. The results support the agency theory hypothesis, revealing that at the corporate level, stock owned companies show higher managerial efficiency than the mutual counterparts whilst undertaking higher risk activities than the comparable mutual companies. Nonetheless, at the product level, no difference is found by ultimate ownership type with regard to risk-fee-adjusted performance of unit trusts. The latter indicates that competitive product markets remove the performance distinctions between mutuals and proprietary companies. Overall, these findings suggest that mutual organisations exhibit weaker cost control in conducting unit trust business via their affiliated companies