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Cost and profit efficiencies in transition banking: the case of new EU members

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This paper analyses cost and profit efficiencies in commercial banking in the eight Central and Eastern European countries that became new members to the European Union. Common stochastic cost and profit frontiers with country-specific variables are employed in order to take into account macro-economic and financial sector conditions that vary over time and across countries. The impact of foreign ownership on performance is also examined. The results indicate a wide range of cost and profit inefficiency scores across countries and across different size groups. All banking systems in the sample display significant levels of cost and profit inefficiency and there does not seem to be any continuous improvement in performance over time. There is also some evidence that foreign banks perform, on average, better than domestic banks.

Document Type: Research Article


Affiliations: 1: Department of Economics, Faculty of Business, Dokuz Eylul University, 35160, Buca, Izmir, Turkey 2: Faculty of Economics and Administrative Sciences, Department of Business Administration, 26 Agustos Yerlesimi, 81120, Istanbul, Turkey

Publication date: May 20, 2006

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