Are there any cost and profit efficiency gains in financial conglomeration? Evidence from the accession countries

Abstract

Diversified banks should benefit from an efficient allocation of resources, debt coinsurance and scope economies. At the same time, critics of diversification question these advantages pointing to agency problems such as managerial entrenchment and empire building that could also lead to diversification but for the 'wrong' reasons. This paper sheds further light on the issue of bank diversification by taking a direct look into how efficiently financial conglomerates operate and by measuring to what extent size and other bank- and market-specific factors matter in evaluating the relationship between diversification and efficiency. We focus on banks operating in the accession countries over the period 2001-2007 and estimate their cost and alternative profit efficiencies using a data envelopment analysis estimator. The results indicate that banks suffer from relatively high cost and profit inefficiencies and that there are noticeable differences in the efficiency levels across countries. Concerning banks' degree of diversification, we find strong evidence to suggest that more diversified institutions are more likely to be cost- and profit-efficient and that size is a key factor in explaining best practice, particularly on the profit side.financial conglomerates, efficiency, accession countries, DEA, two-stage approach,

Probability of default and efficiency in cooperative banking

“…Our results indicate that lower risk is related to a higher survival time for cooperative banks. These findings contribute to the existing literature that investigates the direct link between efficiency and risk-taking (Chortareas et al, 2011;Chronopoulos et al, 2011;Fiordelisi et al, 2011) by showing that prudent and skilful managerial abilities increase the survival time of cooperative banks. To support our view, we test three research hypotheses that focus on the contribution of efficiency to the probability of bank failure.…”

Income Diversification and Bank Efficiency in Vietnam

“…The current studies in the world on the effect of income diversification on the performance of commercial banks also led to different conclusions that income diversification played an important role in bank efficiency. The research by Chronopoulos et al (2011), Lee et al (2014) supported the view point that income diversification would help banks increase efficiency. Whereas the studies of Vennet (2002), Stiroh and Rumble (2006), Elyasiani and Wang (2012) and a series of other studies indicated that income diversification or bank activities had an inverse relationship with operational efficiency and even increased risks for banks.…”

Analysis of the impact from non-interest income to the operational efficiency of commercial banks in Vietnam

“…Klein and Saidenberg (1997) argued that the combination of banking services would generate stable income, optimize management costs and contribute to bank profits; banks with non-interest trading reduce the volatility of profits (Santomero & Chung, 1992). Chronopoulos et al (2011) used data envelopment analysis (DEA) to estimate both cost and profitability of banks in the early stages. The results show that there was a high efficiency of both the costs and profitability of banking operations.…”