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The measurement and determinants of x-inefficiency in commercial banks in Sub-Saharan Africa

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  • C. Kirkpatrick
  • V. Murinde
  • M. Tefula

Abstract

This paper uses the translog stochastic cost and profit frontier approach to measure the degree of x-inefficiency in a panel of 89 commercial banks drawn from nine Sub-Saharan African countries, covering the period 1992-99. The paper then models the determinants of x-inefficiency in terms of bank-specific factors and general macroeconomic variables. It is found that profit x-inefficiency is slightly higher than cost x-inefficiency, which suggests that revenue x-inefficiency is rather small. The evidence also shows that the degree of cost x-inefficiency is exacerbated by bad loans, high capital ratios and financial liberalisation. In contrast, it is shown that larger banks are more efficient and the level of foreign bank penetration reduces x-inefficiency. These findings have important implications for bank managers and regulators in Sub-Saharan Africa.

Suggested Citation

  • C. Kirkpatrick & V. Murinde & M. Tefula, 2008. "The measurement and determinants of x-inefficiency in commercial banks in Sub-Saharan Africa," The European Journal of Finance, Taylor & Francis Journals, vol. 14(7), pages 625-639.
    • Handle: RePEc:taf:eurjfi:v:14:y:2008:i:7:p:625-639
    DOI: 10.1080/13518470701705769
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    References listed on IDEAS

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    1. Carmen M. Reinhart & Graciela L. Kaminsky, 1999. "The Twin Crises: The Causes of Banking and Balance-of-Payments Problems," American Economic Review, American Economic Association, vol. 89(3), pages 473-500, June.
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    Cited by:

    1. Adeabah, David & Abakah, Emmanuel Joel Aikins & Tiwari, Aviral Kumar & Hammoudeh, Shawkat, 2023. "How far have we come and where should we go after 30+ years of research on Africa's emerging financial markets? A systematic review and a bibliometric network analysis," Emerging Markets Review, Elsevier, vol. 55(C).
    2. Florian Leon, 2015. "What do we know about the role of bank competition in Africa?," CERDI Working papers halshs-01164864, HAL.
    3. Zins, Alexandra & Weill, Laurent, 2018. "Do Pan-African banks have the best of both worlds?," Economic Systems, Elsevier, vol. 42(4), pages 665-681.
    4. Wanke, Peter & Maredza, Andrew & Gupta, Rangan, 2017. "Merger and acquisitions in South African banking: A network DEA model," Research in International Business and Finance, Elsevier, vol. 41(C), pages 362-376.
    5. Carlos P. Barros & Qi Bin Liang & Nicolas Peypoch, 2014. "Technical Efficiency in the Angolan Banking Sector with the B-convexity Model," South African Journal of Economics, Economic Society of South Africa, vol. 82(3), pages 443-454, September.
    6. Md. Asif Nawaz, 2021. "Impact of Specialization, Ownership Structure, and Size on Cost and Profit Efficiency of US Commercial and Savings Banks," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 11(3), pages 1-4.
    7. Jorge E. Galán & Yong Tan, 2024. "Green light for green credit? Evidence from its impact on bank efficiency," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(1), pages 531-550, January.
    8. Phan, Hanh Thi My & Daly, Kevin, 2020. "Market concentration and bank competition in emerging asian countries over pre and post the 2008 global financial crisis," Research in International Business and Finance, Elsevier, vol. 51(C).
    9. Thi My Phan, Hanh & Daly, Kevin & Akhter, Selim, 2016. "Bank efficiency in emerging Asian countries," Research in International Business and Finance, Elsevier, vol. 38(C), pages 517-530.
    10. Kozak Sylwester & Wierzbowska Agata, 2021. "Banking Market Concentration and Bank Efficiency. Evidence from Southern, Eastern and Central Europe," South East European Journal of Economics and Business, Sciendo, vol. 16(1), pages 38-52, June.
    11. repec:aer:wpaper:324 is not listed on IDEAS
    12. du Toit, Elda & Cuba, Yolanda Z., 2018. "Cost and profit efficiency of listed South African banks pre and post the financial crisis," Research in International Business and Finance, Elsevier, vol. 45(C), pages 435-445.

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