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Efficiency and competition in Korean banking

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  • Maximilian J. B. Hall
  • Richard Simper

Abstract

Using a translog cost function, we first estimate the economies of scale and then calculate the bank-specific scale elasticities for Korean banks over the period 2007Q2 to 2011Q2. We find that all the National banks operate with significant economies of scale, with bank-specific scale elasticities ranging from 82% to 88%, while half of the Regional banks and Specialized banks also exhibited significant scale economies, with bank-specific scale elasticities averaging around 92% and 83%, respectively. Incorporating these bank-specific scale elasticities directly within the model at the second stage of the Panzar and Rosse (1987) approach to measure market concentration, we find evidence of perfect competition prevailing in Korean banking. This offers a basis for merger policy where there are scale economies to be obtained -- reducing average costs -- yet having little destabilizing effect on the competitive nature of the industry.

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  • Maximilian J. B. Hall & Richard Simper, 2013. "Efficiency and competition in Korean banking," Applied Financial Economics, Taylor & Francis Journals, vol. 23(10), pages 881-890, May.
    • Handle: RePEc:taf:apfiec:v:23:y:2013:i:10:p:881-890
    DOI: 10.1080/09603107.2013.776661
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    1. Richard Simper & Maximilian J.B. Hall & Wenbin B. Liu & Valentin Zelenyuk & Zhongbao Zhou, 2014. "How Relevant is the Choice of Risk Management Control Variable to Non-parametric Bank Profit Efficiency Analysis?," CEPA Working Papers Series WP122014, School of Economics, University of Queensland, Australia.
    2. Carlos Pestana Barros & Emanuel Reis Leão & Nkanga Pedro João Macanda & Zorro Mendes, 2016. "A Bayesian Efficiency Analysis of Angolan Banks," South African Journal of Economics, Economic Society of South Africa, vol. 84(3), pages 484-498, September.
    3. Richard Simper & Maximilian J. B. Hall & WenBin Liu & Valentin Zelenyuk & Zhongbao Zhou, 2017. "How relevant is the choice of risk management control variable to non-parametric bank profit efficiency analysis? The case of South Korean banks," Annals of Operations Research, Springer, vol. 250(1), pages 105-127, March.
    4. Vo, Xuan Vinh & Pham, Thi Hoang Anh & Doan, Thang Ngoc & Luu, Hiep Ngoc, 2021. "Managerial Ability and Bank Lending Behavior," Finance Research Letters, Elsevier, vol. 39(C).

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