Cost Efficiency Determinants: Evidence from the Canadian Banking Industry

Oredegbe, Abayomi

doi:10.5539/ijbm.v15n1p86

Cited by 2 publications

(3 citation statements)

References 63 publications

(93 reference statements)

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“…12, No. 4;2020 in each of the regressions, pointing to evidence of RMP in the industry. Additionally, the results in Table 5 and Table 6 provide no support for the ESH, making it unnecessary to perform further tests associated with ESH (Mensi & Zouari, 2010).…”

Section: Robustness Checkmentioning

confidence: 93%

“…In addition, becoming scale efficient by operating at optimum scale size minimize costs, contributing to higher profitability (Behname, 2012;Tregenna, 2009). Similar to Oredegbe (2020), the industry's CE and SE were determined using input oriented Data Envelopment Analysis (DEA), which is a nonparametric approach requiring no price information. Additionally, the intermediation approach, which is the common approach for input and output selection is relied on in the selection of the three inputs (i.e., deposits, employment, non-interest expense) and two outputs (i.e., loans and net-interest income).…”

Section: Methodology and Datamentioning

confidence: 99%

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Canadian Banking Industry Profitability: Exploring the Relevance of Two Competing Hypotheses

Oredegbe¹

2020

IJEF

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This study investigates the Canadian banking industry profitability and seeks to determine if there is evidence of market power hypothesis (MPH) and/or efficiency structure hypothesis (ESH) in the industry. Using GMM and data from 2006 to 2018, it finds no support for the structure-conduct-performance (SCP) component of MPH. However, evidence of relative market power (RMP) in the industry reflects partial support for MPH, implying that banks that offer differentiated products are able to exercise market power, increase market share, and achieve better profitability. The lack of support for X-efficiency (ESX) and scale efficiency (ESS), which are components of ESH, indicates no support for the ESH. The finding that QLH holds in the industry suggests the level of competition is inadequate and that managers in the industry exhibit suboptimal behaviour. Therefore, increasing the level of competition in the industry will stimulate managerial effectiveness. Findings relating to the control variables show that spread impedes profitability, whereas capitalization and the joint influence of spread and liquidity risk have facilitating effects. Credit risk is immaterial to profitability however, the effect of economic growth can be positive. This study provides a better understanding of the industry, which is important to managers, regulators, and policy makers. The robustness checks affirm the consistency of the findings and policy implications.

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Section: Robustness Checkmentioning

confidence: 93%

Section: Methodology and Datamentioning

confidence: 99%

Canadian Banking Industry Profitability: Exploring the Relevance of Two Competing Hypotheses

Oredegbe¹

2020

IJEF

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“…According to the author's study, Oredegbe (2020) of the banking industry in Kanda, high capitalization and managerial income in administrative costs are efficient in the state of the costs of converting deposits into loans, while on the other side, other market power, diversification, and reduced cost efficiency.…”

Section: Literature Reviewmentioning

confidence: 99%

Assessment of cost efficiency in the banking sector of selected countries in Southeastern Europe

Krasniqi-Pervetica,

Ahmeti

2024

IJAEFA

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This study examines the assessment of cost efficiency in the banking sector of selected countries in Southeastern Europe. In Southeastern Europe (SEE), where over 100 commercial banks operate, these institutions form the backbone of the financial sector, supporting between 80% and 90% of the financial system in five Balkan Peninsula nations. Kosovo stands out for having a lower participation rate (65%), with 80% to 90% of its banks under foreign government control. A study conducted from 2010 to 2021 employed Data Envelopment Analysis (DEA), a non-parametric technique, to scrutinize the cost-effectiveness and profitability of SEE's banking industry. DEA evaluated SEE's commercial banks in terms of cost efficiency, considering total costs as the dependent variable and inputs including deposits, workforce, and fixed assets. Interest expenses, personnel expenses, and capital-related expenses were compared concerning total deposits and assets, while securities and loans served as outputs. The findings unveiled commendable cost efficiency within SEE's banks. Subsequently, a panel regression analysis utilizing fixed and random effects was performed. Factors like Cost Efficiency, Asset Quality, Market Participation, Debt Ratio, Bank Size, Inflation, Ownership, and Gross Domestic Product were assessed against Return on Equity (ROE) and Return on Assets (ROA). The results underscored robust cost control measures within SEE's banks and highlighted significant factors—Cost Efficiency, Asset Quality, Market Participation, Debt Ratio, Bank Size, Inflation, and Ownership—exerting substantial influence on ROA and ROE. These insights offer valuable information for strategic decision-making, aiding stakeholders in developing targeted actions to enhance the financial sustainability and stability of Southeastern Europe's banking sector.

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Cost Efficiency Determinants: Evidence from the Canadian Banking Industry

Cited by 2 publications

References 63 publications

Canadian Banking Industry Profitability: Exploring the Relevance of Two Competing Hypotheses

Canadian Banking Industry Profitability: Exploring the Relevance of Two Competing Hypotheses

Assessment of cost efficiency in the banking sector of selected countries in Southeastern Europe

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