Competition and bank efficiency in emerging markets: empirical evidence from Ghana

Abstract

Purpose – The purpose of this paper is to examine the relationship between competition and efficiency in the Ghanaian banking industry. Design/methodology/approach – Data on 26 banks from 2004 to 2011 is used to estimate technical and cost-efficiency scores by the data envelopment analysis while the Boone indicator is employed to proxy for competition. Controlling for bank size, lending, income diversification, tangibility, leverage and profitability, ordinary least squares, instrumental variables and fixed effects estimations are used to estimate the panel regression model. The authors also apply the growth convergence theory to examine the existence of efficiency convergence. Findings – The results points to improvements in cost efficiency (CE) and competition within the banking industry. From the empirical estimations, the findings suggest that competition exerts a positive influence on CE. The authors also find evidence of convergence in both technical and CE. Research limitations/implications – The study recommends that efforts at improving competitiveness of the banking industry will translate into lower interest rate spread through improved CE. This will ultimately improve access to bank credit and impact positively on economic growth. Future studies could also examine productivity changes and scale economies in the banking industry. Originality/value – To the authors best knowledge, this is the first study to apply the Boone (2001) indicator in assessing the competitiveness of the Ghanaian banking industry. This is also the first study to examine efficiency convergence within the banking industry in Ghana.

The Development of the Mozambican Banking Sector and Strategic Fit of Mergers and Acquisitions: A Two‐Stage DEA Approach

“…The literature on overall African bank efficiency and performance is fairly broad (Alhassan and Ohene‐Asare, ; Ohene‐Asare and Asmild, ; Kablan, ; Mlambo and Ncube, ). Moreover, studies on banking competition and efficiency at the country level in African nations have been done by Mlambo and Ncube ().…”

“…Mlambo and Ncube () used the Panzar‐Rosse approach to derive the H‐statistic for competitive conditions in South African banking and ascertain its effects on bank efficiency. A recent study by Alhassan and Ohene‐Asare () investigated bank efficiency by applying DEA. They also looked at bank efficiency taking into account bank competition.…”

“…Despite the numerous studies on bank efficiency and productivity using DEA (Wanke et al ., ; Wu et al, ; Wanke and Barros, ; Liu et al ., ; Wanke and Barros, ; Wanke et al ., ; Azad et al ., ) and other stochastic frontier approaches (Baten and Kamil, ), a systematic study of banks in African countries is still missing (Ikhide, ; Barros et al ., ; Zhao and Murinde, ; Mlambo and Ncube, ; Mwega, ; Devarajan and Kasekende, ; Ghirmay, ; Hussain et al ., ; Nkamleu, ; Poshakwale and Qian, ). Indeed, thus far, no in‐depth analysis of M&As in African banking has been conducted (Alhassan, ; Alhassan and Ohene‐Asare, ; Ohene‐Asare and Asmild, ; Kablan, ; Mlambo and Ncube, ).…”

La eficiencia relativa del sector real vs. la del sector financiero de la economía colombiana

“…En el ámbito mundial, la metodología DEA ha sido utilizada para medir la eficiencia de los bancos, componen-te fundamental del sector financiero, como es el caso de los bancos vietnamitas, en donde un estudio reveló, para el período de 2000-2014, el impacto que la rentabilidad y los efectos de reformas hechas por el gobierno tuvieron en la eficiencia de los mismos (Nguyen, Nghiem, Roca & Sharma, 2016); así como el caso de Ghana, en el que mediante el uso de DEA se determinó la relación entre eficiencia y competencia para los bancos de este país y cuyo fruto fue la recomendación de enfocar los esfuerzos en la mejora de la competitividad a través de la reducción de las tasas de interés y el acceso a los créditos para impactar positivamente en el crecimiento económico (Alhassan & Ohene-Asare, 2016).…”

Banking efficiency in emerging economies: Does foreign banks entry matter in the Ghanaian context?

“…Second, foreign bank entry increases bank efficiency in the long-term. Although no study has tested these hypothesis from the Ghanaian perspective, several papers have looked at the effect of competition on bank efficiency in Ghana (Alhassan & Ohene-Asare, 2016). Evidence shows that the entry of foreign banks puts pressure on the financial sector to perform (Demirgüç-Kunt & Levine, 2008).…”