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Bank Failures Under Managerial And Regulatory Inefficiency: Three Decades Of Evidence From Turkey

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  • Ihsan Isik
  • Daniel Folkinshteyn

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.

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  • Ihsan Isik & Daniel Folkinshteyn, 2017. "Bank Failures Under Managerial And Regulatory Inefficiency: Three Decades Of Evidence From Turkey," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 40(4), pages 479-506, December.
    • Handle: RePEc:bla:jfnres:v:40:y:2017:i:4:p:479-506
    DOI: 10.1111/jfir.12132
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    Cited by:

    1. Xinhua Gu & Chun Kwok Lei & Qingbin Zhao & Nian Liu, 2024. "Different experiences of Asian emerging‐market economies in the two major financial crises," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3286-3308, July.
    2. Isik, Ihsan & Uygur, Ozge, 2021. "Financial crises, bank efficiency and survival: Theory, literature and emerging market evidence," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 952-987.

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