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

The line of literature that addresses the impact of foreign bank entry on bankperformance in the context of emerging and transition economies has done so mainly bycomparing the performances of foreign and domestic banks. Common findings inempirical studies generally point to a positive relationship between foreign involvement,foreign ownership, as denoted by different levels of participation of foreign banks indomestic banks, and bank performance (Bonin et al., 2005).Some studies have focused on the countries of interest to our paper, for instance,Sabi (1996) who compared the performance of domestic and foreign banks in Hungaryfor the period 1992-1993, when the foreign banks that were present in Hungary weremostly Greenfield investments. Using data on financial statements of banks from theHungarian Financial and Stock Exchange Almanac, the author constructs accountingmeasures of bank performance that reflect profitability, liquidity and credit risk, andcommitment to the market economy of both types of banks. The author then uses t- testsand Kruskal–Wallis tests and finds significant differences in these indicators generally infavor of foreign banks.(Nikiel & Opiela, 2002) examines the determinants of bank efficiency in Polandfrom 1997 to 2000. The authors first estimate cost and profit efficiencies usingDistribution Free Approach (DFA). Then, these efficiency scores are used in a secondstage regression with independent variables representing bank characteristics such assize, ownership, and customer type. The results show that foreign banks working withforeign clients are more cost-efficient than private domestic banks, while foreign banksworking with domestic clients are not. By contrast, foreign banks with foreign clients areless profit-efficient than private domestic banks, while foreign banks with domesticclients are not. Moreover, cost scale economy and profit diseconomy of scales are foundto be present.Weill (2003) uses stochastic frontier analysis to study bank efficiency in theCzech Republic and Poland in 1997. Cost efficiency scores reveal that on average,foreign banks are more cost efficient than domestic banks. In a second-stage regression,he models the inefficiency scores, controlling for size and structure of activities andconcludes that these factors had no impact on inefficiency.-4-