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Decomposing global bank productivity growth: the role of non-performing loans, equity and technology

Emmanuel Mamatzakis and Mike Tsionas

Working Paper series from Rimini Centre for Economic Analysis

Abstract: We propose a flexible functional form for estimating production performance that allows for endogeneity of the underlying inputs and outputs. The proposed model opts for a novel local likelihood estimation method that adequately deals with issues of endogeneity, whilst accounts for non-parametric heteroskedasticity in the covariance matrix of the error term. We argue that bank productivity as provided by our model based on bank micro-foundations is better suited to measure bank performance compared to efficiency. In the empirical section, we show the destructive effect of nonperforming loans on bank-specific TFP growth in advanced, emerging and developing economies. Technology, though, appears to positively contribute to bank TFP growth across the world. Furthermore, we show that bank risk-taking and raising capital by equity are negatively related to TFP growth, while liquidity has a positive impact.

Keywords: banking; productivity growth; local likelihood function; global banking (search for similar items in EconPapers)
JEL-codes: D24 G21 G33 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eff
Date: 2018-11
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Persistent link: https://EconPapers.repec.org/RePEc:rim:rimwps:18-41

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