This paper investigates the impact of specific modes of entry of foreign banks, i.e. greenfield investment versus merger and acquisition, on bank performance in three transition economies ñ the Czech Republic, Hungary, and Poland. We use stochastic frontier analysis to model and measure the cost efficiency of banks. We adopt a maximum likelihood approach to estimation in which the variance of the one-sided error term is modeled jointly with the cost frontier, thus enabling us to retrieve efficiency scores, as well as estimating the various determinants of X-inefficiency. We first find that foreign banks are generally more cost efficient than their domestic counterparts, a result that confirms those of the existing empirical literature. We then turn our focus to comparative performance of greenfield banks versus merger and acquisition banks (M & As), and of M & As versus domestic banks. The results show that on average, M & As are surpassed in terms of efficiency by greenfields banks, but no cost efficiency difference is apparent between M & As and domestic banks. However, we find a strong age effect with respect to M & As which suggests that the evolution of M & Así efficiency follows an inverse U-shape, that means M & As tend to get more inefficient following the acquisition, but approximately 4 years and a haft later, their efficiency starts to improve.http://deepblue.lib.umich.edu/bitstream/2027.42/64431/1/wp925.pd
