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Cost Efficiency of Ghana's Banking Industry: A Panel Data Analysis

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  • Kofi Adjei-Frimpong
  • Christopher Gan
  • Baiding Hu

Abstract

This study analyzes the efficiency of the banking industry in Ghana over the period of 2001–2010 using the data envelopment analysis. The study investigates the impact of size, capitalization, loan loss provision, inflation rate and GDP growth rate on Ghana’s bank efficiency using both static and dynamic panel data models. The static model is estimated by the fixed effects estimator whereas the dynamic mdoel is estimated by the two step system GMM estimator. The results suggest that Ghana banks are inefficient. This study reveals that well-capitalized banks in Ghana are less cost efficient. In addition, bank size has no influence on bank cost efficiency suggesting that larger banks in Ghana have no cost advantages over their smaller counterparts. The findings also exhibit that loan loss provision ratio has no effect on bank efficiency in Ghana. This study finds GDP growth rate negatively influences bank cost efficiency and that lagged cost efficiency tends to persist from year to year.

Suggested Citation

  • Kofi Adjei-Frimpong & Christopher Gan & Baiding Hu, 2014. "Cost Efficiency of Ghana's Banking Industry: A Panel Data Analysis," The International Journal of Business and Finance Research, The Institute for Business and Finance Research, vol. 8(2), pages 69-86.
    • Handle: RePEc:ibf:ijbfre:v:8:y:2014:i:2:p:69-86
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    2. Maha Haroon & Danish Ahmed Siddiqui, 2019. "Determinants of Allocative, Cost and Scope Efficiencies: A Comparative Analysis of Banks and Insurance Companies in Pakistan," Business Management and Strategy, Macrothink Institute, vol. 10(2), pages 285-312, December.
    3. Clement Olalekan Olaniyi & Titus Ayobami Ojeyinka & Xuan Vinh Vo & Mamdouh Abdulaziz Saleh Al‐Faryan, 2023. "Do business strategies vary across firms in the banking industry? New perspectives from the bank size–profitability nexus," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 525-544, January.
    4. Andriyani, Lilik & Usman, Nurodin & Pambuko, Zulfikar Bagus, 2020. "Antecedents of Social Funds Productivity of Islamic Banks in Indonesia," OSF Preprints 258jk, Center for Open Science.
    5. Liang-Han Ma & Jin-Chi Hsieh & Ying Li & Yung-Ho Chiu, 2021. "Evaluating Efficiency Change in Taiwan’s Financial Industry," SAGE Open, , vol. 11(2), pages 21582440211, April.
    6. Eric Fosu Oteng-Abayie, 2017. "Technical efficiency and total factor productivity of rural banks in Ghana," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1366088-136, January.
    7. Michael Danquah & Peter Quartey, 2015. "Examining the determinants of efficiency using a latent class stochastic frontier model," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1124741-112, December.
    8. Philip Kofi Adom & William Bekoe & George Quartey & Kwaku Amakye & Charles Barnor, 2016. "Impact of Market-based Policies and External Fiscal Discipline on Ghana's Inflation," Review of Development Economics, Wiley Blackwell, vol. 20(4), pages 794-816, November.
    9. Ayobami Ojeyinka, Titus & Enisan Akinlo, Anthony, 2021. "Does Bank Size Affect Efficiency? Evidence From Commercial Banks In Nigeria," Ilorin Journal of Economic Policy, Department of Economics, University of Ilorin, vol. 8(1), pages 79-100, June.
    10. Sanderson Abel & Alex Bara & Pierre Le Roux, 2019. "Evaluating Bank Cost Efficiency Using Stochastic Frontier Analysis," Journal of Economics and Behavioral Studies, AMH International, vol. 11(3), pages 48-57.
    11. Robert O. Ngwu & Vincent A. Onodugo & Francis E. Monyei & Wilfred I. Ukpere & Phina N. Onyekwelu & Uche Gerald Mmamel, 2023. "The Nexus between Industrial Parks and the Sustainability of Small and Medium-Scaled Ventures," Sustainability, MDPI, vol. 15(12), pages 1-19, June.
    12. Man Ha & Christopher Gan & Cuong Nguyen & Patricia Anthony, 2021. "Self-Organising (Kohonen) Maps for the Vietnam Banking Industry," JRFM, MDPI, vol. 14(10), pages 1-18, October.

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    More about this item

    Keywords

    Data Envelopment Analysis; Bank Efficiency; Cost Efficiency;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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