Does ownership structure affect firm performance? Evidence of Indian bank efficiency before and after the Global Financial Crisis

Peter Wanke, Michael Skully, Mahinda Wijesiri, Thomas Walker, Lucia dalla Pellegrina

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This paper investigates the relationship between bank ownership and efficiency before and after the 2008–2009 Global Financial Crisis. Using a sample of 58 Indian commercial banks from 2005 to 2017, we examine the interconnection between these factors in a dynamic data envelopment analysis (DEA) framework. We use an innovative modeling strategy based on a two-stage dynamic DEA framework. The first stage employs the Dynamic Slack-Based Measure model to measure bank efficiency, explicitly considering the effects of desirable and undesirable carry-overs between consecutive periods. In a second stage, we perform a regression of the efficiency scores on bank ownership types and several other contextual factors, while also accounting for the presence of endogenous relationships between the variables involved. Our results show that foreign banks outperform their domestic competitors, with bank size and profitability being the main drivers. We also find that while foreign and state-owned banks were more efficient than their rivals during the Global Financial Crisis, private banks recovered quickly, reaching the efficiency standards of state-owned banks by 2017. The latter faced a prolonged decrease in efficiency, gradually losing their initial advantage over their private domestic counterparts. Our results are robust to alternative regression specifications, especially those aimed at addressing potential endogeneity issues. The applied methodology and the findings of our research should be of interest to scholars, bank managers, and policymakers. The latter, in particular, should be concerned about the medium-term effects of reforms that unevenly affect banks with different ownership structures, especially in terms of bank resilience to aggregate shocks.

Original languageEnglish
Pages (from-to)1842-1867
Number of pages26
JournalInternational Transactions in Operational Research
Volume29
Issue number3
DOIs
Publication statusPublished - May 2022

Keywords

  • Banks
  • DEA
  • DSBM
  • efficiency
  • global financial crisis
  • ownership

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