Institutions and Bank Performance: A Stochastic Frontier Analysis

34 Pages Posted: 27 Feb 2007

See all articles by Robert Lensink

Robert Lensink

University of Groningen - Department of Economics, Econometrics and Finance; Wageningen UR - Development Economics Group

Aljar Meesters

University of Groningen - Faculty of Economics and Business

Date Written: February 2007

Abstract

This paper examines whether institutional differences between countries impact upon the efficient operation of commercial banks. We hypothesize that well developed institutions may affect the adoption of the technology used by banks, and the efficient use of the technology in place. By applying a stochastic frontier analysis on a panel of more than 2000 banks for 110 countries over 7 years we show that banks operating in countries with better institutions apply more cost reducing technologies, and are able to use the technologies in place more efficiently. Overall, the results underpin the importance of well-developed institutions for an efficient operation of commercial banks.

Keywords: Institutions, Efficiency, Stochastic Frontier Analysis, Banks

JEL Classification: G21, G30, K4

Suggested Citation

Lensink, Robert and Meesters, Aljar, Institutions and Bank Performance: A Stochastic Frontier Analysis (February 2007). Available at SSRN: https://ssrn.com/abstract=965825 or http://dx.doi.org/10.2139/ssrn.965825

Robert Lensink (Contact Author)

University of Groningen - Department of Economics, Econometrics and Finance ( email )

P.O. Box 800
9700 AH Groningen
Netherlands

Wageningen UR - Development Economics Group ( email )

Hollandseweg 1
WAGENINGEN, 6706 KN
Netherlands

Aljar Meesters

University of Groningen - Faculty of Economics and Business ( email )

Postbus 72
9700 AB Groningen
Netherlands

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