Does the Entry Mode of Foreign Banks Matter for Bank ... - EconomiX

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other non-interest expenses to fixed assets and the price of borrowed funds is the ratio ofinterest paid to all funding. Total costs are the sum of personnel expenses, interest paidand other non-interest expenses.In terms of the modeling of the inefficiency term, the inclusion of variablescapturing exogenous factors will help to identify whether discrepancies in performancethrough each type of bank could be influenced by these factors as opposed to simplybetter management. We construct three binary dummy variables in the data: foreign,merger and greenfield. These represent, respectively, whether the bank is foreign-ownedor domestic-owned, whether it has merged with or acquired a domestic bank or not andwhether it has entered through greenfield investment or not. Along with these dummyvariables, our inefficiency model controls for the impact of the following factors on bankinefficiency.Size. To account for bank size, we use the natural log of total assets.Structure of activities. To account for the nature of activities of banks, weconstruct two variables. To reflect differences in the structure of assets, we take intoaccount the ratios of investment assets over loans. On the liabilities side, we include theshare of deposits in total funding in the regressions.Age effect. We capture the adjustment process of M&As over time with an agevariable. We also take into account the square of the age or the natural logarithm of theage to allow for the possibility that the way cost efficiency adjusts over time may befollowing a non-linear path.We calculate the age of a bank by the number of full years since its incorporation.In case a domestic bank is acquired and becomes majority foreign-owned, we classify theformer bank as domestic until the acquisition date, and the new merged bank as foreignfrom the first full year following the acquisition date. The date of incorporation for thenew merged bank is therefore this first full year. For those domestic banks whose dates ofincorporation are before the transition, we take the date of creation of the two-tierbanking system which marked the beginning of a commercial banking system as that ofincorporation as only from this date that these banks started to operate on a commercialbasis.-24-
Market share. We calculate a bank’s market share as its share of assets over totalbanking sector's assets.5. DataWe obtained data from Bureau van Dijk's BankScope database, version 2006. Forour sample, we select three most advanced countries in Central Europe: the CzechRepublic, Hungary, and Poland. We choose these countries for a number of reasons.Indeed, we are first motivated by their very high levels of foreign bank penetration incomparison with other transition countries, and even with other developing countries.Consequently, greenfield and merger and acquisition entries take place most extensivelyin these countries. This therefore facilitates the analysis of different modes of entry onbanks’ cost performance. Second, the activities of foreign banks there are betterdocumented than in other transition economies. Finally, the levels of economicdevelopment between the three countries are relatively homogeneous, which facilitatesthe cross-country comparison.As it is commonly known by academic researchers and professionals, the data forbanks from less developed and transition countries require substantial editing before areliable sample can be constructed. We therefore carefully review our data to avoiddouble counting of institutions, to exclude non-bank financial institutions from thesample. We also exclude banks that are not commercial, cooperative and savings banks toensure that we are estimating performance based on a relatively homogeneous group ofbanks. With respect to the type of account, we prefer unconsolidated accounts toconsolidated ones wherever available. Once the type of account chosen, we take the onefollowing the international financial reporting standards (IFRS) wherever available. Ifnot, we take the account with local accounting standards. Nevertheless, sometimes IFRSdata are available for only one or two years while longer time series are available in localstandards. In such cases we use local standards. Thus, our final sample consists of 153banks from the Czech Republic, Hungary, and Poland over the period 1994 to 2004. Thedistribution of banks by ownership and mode of entry is given in table 2.While BankScope has a very large coverage of banks over the world, thisdatabase provides information on bank ownership only for the current calendar year.-25-
Page 1 and 2: Does the Entry Mode of Foreign Bank
Page 3 and 4: two-stage approach commonly adopted
Page 5: Working over an extended period run
Page 11 and 12: separate legal entity incorporated
Page 13 and 14: multinationals and Hungarian monopo
Page 15 and 16: have steadily increased their marke
Page 17 and 18: - the government and the strategic
Page 19 and 20: Hypothesis 4: The nature of the inh
Page 21 and 22: are assumed to be independently and
Page 23: C1pln( ) = + ln + ln ln + ln( ) +p2
Page 27 and 28: In this section, we present results
Page 29 and 30: ecomes significant. This therefore
Page 31 and 32: The results related to the age vari
Page 33 and 34: Berger, A. N., R. Young, H. Genay,
Page 35 and 36: Kalirajan, K. (1981). “An Econome
Page 37 and 38: Williams, J., & Liao, A. (2008). Th
Page 39 and 40: Table 2: Number of Banks by Ownersh
Page 41 and 42: Table 4: Determinants of Cost Ineff
Page 43 and 44: Table 6: Determinants of Cost Ineff
Page 45 and 46: year_11 -0.124 -0.059(0.043)*** (0.
Page 47 and 48: year_10 0.001 -0.001 -0.015 -0.047(
Page 49: year_10 -0.119 -0.121 -0.090 -0.173

Does the Entry Mode of Foreign Banks Matter for Bank ... - EconomiX

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