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

Author

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  • Abdul Latif Alhassan
  • Kwaku Ohene-Asare

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.

Suggested Citation

  • Abdul Latif Alhassan & Kwaku Ohene-Asare, 2016. "Competition and bank efficiency in emerging markets: empirical evidence from Ghana," African Journal of Economic and Management Studies, Emerald Group Publishing Limited, vol. 7(2), pages 268-288, June.
    • Handle: RePEc:eme:ajemsp:v:7:y:2016:i:2:p:268-288
    DOI: 10.1108/AJEMS-01-2014-0007
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    Citations

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    Cited by:

    1. Moses Nyangu & Nyankomo Marwa & Ashenafi Fanta, 2023. "What drives financial stability? the nexus between market power and bank efficiency within the East African Community," Journal of Chinese Economic and Business Studies, Taylor & Francis Journals, vol. 21(3), pages 403-428, July.
    2. Ulik Hertina Wuni Astuti & Putu Mahardika Adi Saputra, 2019. "Efficiency and Competition in Banking Industry: Case for ASEAN-5 Countries," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 66(2), pages 141-152, June.
    3. Ayesha Hameed & Tahir Saeed Jagirani & Mohammad Qamar Qureshi & Aisha Riaz, 2024. "The Causal Linkages between Market Power and Cost Efficiency: Testing Quiet Life Hypothesis for the Banking Industry," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(1), pages 803-811.
    4. Gershom Atukunda & Benjamin Musiita & Johnson Atwiine & Aquilionus Atwine & Anthony Moni Olyanga, 2024. "Financial Innovations and Profitability of Commercial Banks in Uganda," Journal of Economics and Behavioral Studies, AMH International, vol. 16(2), pages 32-44.
    5. Atta Ullah & Chen Pinglu & Saif Ullah & Ningyu Qian & Mubasher Zaman, 2023. "Impact of intellectual capital efficiency on financial stability in banks: Insights from an emerging economy," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(2), pages 1858-1871, April.
    6. Busani Moyo, 2018. "An Analysis of Competition, Efficiency and Soundness in the South African Banking Sector," Working Papers 747, Economic Research Southern Africa.
    7. Bright Senanu & Bedman Narteh, 2023. "Banking sector reforms and customer switching intentions: evidence from the Ghanaian banking industry," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 28(1), pages 15-29, March.

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