Bank Failures Under Managerial and Regulatory Inefficiency: Three Decades of Evidence From Turkey

Abstract

Drawing on a comprehensive data set from Turkey (1970–2003) and using both nonparametric (data envelopment analysis) and parametric (stochastic frontier analysis) frontier methods, we estimate 16 alternative efficiency measures to study their associations with the probability of bank failures in an emerging market setting. We find that failed banks severely underperform survived banks in all forms of efficiency and that their subpar performance deteriorates closer to failure, prosperous times and bloated scales tend to precede eventual banking fatalities, managerially induced (technical) inefficiencies dominate politically induced (allocative) inefficiencies in failed banks, and banks with new ownership and affiliation with other businesses are more likely to fail. The results also caution that liquidity, capital, and currency risks combined with poor management are a lethal mix ahead of crises.

Different experiences of Asian emerging‐market economies in the two major financial crises

“…The properties of systemic financial crises have been examined in the literature in terms of their causes and consequences as well as policy responses and outcomes (e.g., fiscal costs, output losses, and public debt hikes) (Apergis, 2018; Behringer & van Treeck, 2018; Belabed et al, 2018; Isik & Folkinshteyn, 2017; Konstantinou et al, 2022; Voinea et al, 2018). As reported by Laeven and Valencia (2012), the frequency and sequencing of crises occurring have some regularities.…”