Adjustment costs in the technical efficiency: an application to global banking

This paper proposes a new framework of measuring technical efficiency that takes into account adjustment costs in variable inputs associated with changes in efficiency. We look closely at the implicit assumption in any model of technical efficiency that inputs could freely adjust. Yet, the technical efficiency is determined from the allocation of inputs by the firm to production on the one hand and to efficiency on the other. We show that technical efficiency depends on adjustment costs in variable inputs. Estimating the proposed model has certain complexities that we overcome by employing a non-parametric Local Linear Maximum Likelihood (LLML). In the empirical section, we employ a comprehensive global banking sample and estimate bank alternative profit efficiency across a plethora of countries with strong variability in the underlying adjustment costs. Moreover, given the observed heterogeneity across countries evidence shows that adjustment costs due to personnel expenses are the highest among advanced countries. Emerging economies show strong potential in terms of efficiency post-financial crisis, mainly due to lower labor adjustment costs. Alas, our findings show some persistence in adjustment costs post the financial crisis

Binary choice models for external auditors decisions in Asian banks

Summarization: The present study investigates the efficiency of four classification techniques, namely discriminant analysis, logit analysis, UTADIS multicriteria decision aid, and nearest neighbours, in the development of classification models that could assist auditors during the examination of Asian commercial banks. To develop the auditing models and examine their classification ability, the dataset is split into two distinct samples. The training sample consists of 1,701 unqualified financial statements and 146 ones that received a qualified opinion over the period 1996–2001. The models are tested in a holdout sample of 527 unqualified financial statements and 52 ones that received a qualified opinion over the period 2002–2004. The results show that the developed auditing models can discriminate between financial statements that should receive qualified opinions from the ones that should receive unqualified opinions with an out-of-sample accuracy around 60%. The highest classification accuracy is achieved by UTADIS, followed by logit analysis, nearest neighbours and discriminant analysis. Both financial variables and the environment in which banks operate appear to be important factors.Presented on: Operational Research, An International Journa

A multivariate analysis of the determinants of auditors' opinions on Asian banks

Purpose- Prior studies on the determinants of audit reports focus on non-financial sectors. In contrast, the present study seeks to examine the determinants of auditors' opinion in the banking industry, using a sample of banks drawn from nine Asian countries over the period 1995-2004. Design/methodology/approach - Logistic regression and a sample of 199 qualified financial statements and 4,403 unqualified ones are used. Findings - The results indicate that Asian banks that receive qualified opinions are in general smaller ones, less well capitalized, less profitable and cost efficient, and appear to have excess liquidity. More external auditing requirements and less accounting and disclosure requirements in the banking sector, also increase the probability of receiving a qualified audit opinion. Practical implications - Knowledge of the above mentioned characteristics could be of particular interest to banks' managers, investors, credit analysts and bank supervisors. Originality/value - Despite the economic importance of the banking industry, accounting researchers have done little to investigate the various relationships that exist between banks and their auditors. Furthermore, most studies focus on the US market and examine the pricing of audit services for financial institutions, the audit opinions on publicly-traded savings and loans institutions that subsequently failed, the effectiveness of bank audit, the loss underreporting and the auditor role of examination of banks, the impact of accounting and auditing systems on risk-shifting of safety nets in banking. The present paper extends the literature by investigating the determinants of external auditors' opinion on Asian banks

Financial characteristics of banks involved in acquisitions: Evidence from Asia

This study examines the financial characteristics of 52 targets and 47 acquirers that were involved in acquisitions in the Asian commercial banking sector over the period 1998 to 2004 and a control sample of non-merged banks matched by country and year. Three logistic regression models are estimated to determine the factors that influence the probability of being involved in an acquisition either as a target or as an acquirer. The results indicate that more asset risky portfolios increase this probability. Higher liquidity also increases the probability of being acquired. The probability of being involved in an acquisition as acquirer also increases with size and cost efficiency. Finally, more profitable banks are more likely to be involved in acquisitions as acquirers rather than as targets. When we partition our sample in two sub-periods we find that only the higher loan loss provisions of targets and the higher size of acquirers remain robust over time

Efficiency in the greek banking industry: A comparison of foreign and domestic banks

This study uses a sample of foreign and domestic banks operating in Greece during 1999-2004 to examine the impact of ownership on efficiency. We estimate an input oriented data envelopment analysis (DEA) model under variable returns to scale with inputs and outputs selected on the basis of a profit-oriented approach. The results indicate an average pure technical efficiency equal to 0.7325 showing that the banks in sample could improve their efficiency by 26.75%. Over the same period, scale efficiency was equal to 0.6830. The comparison of the efficiency scores by group of ownership shows that domestic banks have higher pure technical efficiency and lower scale efficiency; however, the differences are not statistically significant. A DEA window-analysis confirms the results of the cross-section estimations. We also estimate a Tobit regression model but consistent with the univariate results we find no evidence to support the argument that ownership has a statistically significant impact on efficiency. © 2009 International Journal of the Economics of Business

Are the financial characteristics of acquired banks similar across the EU? Evidence from the principal markets

We use a sample of acquired and non-acquired commercial banks from the principal EU markets and logistic regression analysis to investigate the relationship between bank characteristics and the likelihood to be acquired. The results indicate the existence of differences across countries either in terms of the significance of the variables or the sign of their coefficients

Are the financial characteristics of acquired banks similar across the EU? Evidence from the principal markets

We use a sample of acquired and non-acquired commercial banks from the principal EU markets and logistic regression analysis to investigate the relationship between bank characteristics and the likelihood to be acquired. The results indicate the existence of differences across countries either in terms of the significance of the variables or the sign of their coefficients