Role of Bank Regulation on Bank Performance: Evidence from Asia-Pacific Commercial Banks

Zhenni Yang, Christopher Gan and Zhaohua Li
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Zhenni Yang: Department of Financial and Business Systems, Faculty of Agribusiness and Commerce, Lincoln University, Christchurch 7647, New Zealand
Christopher Gan: Department of Financial and Business Systems, Faculty of Agribusiness and Commerce, Lincoln University, Christchurch 7647, New Zealand
Zhaohua Li: Department of Financial and Business Systems, Faculty of Agribusiness and Commerce, Lincoln University, Christchurch 7647, New Zealand

JRFM, 2019, vol. 12, issue 3, 1-25

Abstract: The banking industry is an essential financial intermediary, thus the efficient operation of banks is vital for economic development and social welfare. However, the 2008 global financial crisis triggered a reconsideration of the banking systems, as well as the role of government intervention. The literature has paid little attention to the banking industry in the Asia-Pacific region in the context of bank efficiency. This study employs double bootstrap data envelopment analysis to measure bank efficiency and examine the relationship between regulation, supervision, and state ownership in commercial banks in the Asia-Pacific region for the period 2005 to 2014. Our results indicate that excluding off-balance sheet activities in efficiency estimations lead to underestimating of the pure technical efficiency, while overestimating the scale efficiency of banks in the Asia-Pacific region. Cross-country comparisons reveal that Australian banks exhibit the highest levels of technical efficiency, while Indonesian banks exhibit the lowest average. Our bootstrap regression results suggest that bank regulation and supervision are positively related to bank technical efficiency, while state ownership is not significantly related to bank efficiency. Furthermore, our findings show that tighter regulation and supervision are significantly related to higher efficiency for small and large-sized banks.

Keywords: banks; efficiency; data envelopment analysis; Asia-Pacific; regulations (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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