Bank ownership and productivity developments: evidence from Turkey

Abstract

PurposeThis paper analyzes the responsiveness of different ownership forms to changing business environment by drawing on Turkish experience.Design/methodology/approachThis study is conducted in two stages. In the first stage, the paper uses Malmquist index theory, to estimate the total factor productivity change, technological change, efficiency change, pure efficiency change and scale efficiency change indexes for the Turkish banks. In the second stage, utilizing the generalized least regression format, it examines the significance of the productivity differences between different ownership forms after controlling for size and changes in the macro‐economy.FindingsUnder the “traditional banking definition,” productivity growth during the period was 1.2 percent for state banks, 3.9 percent for private banks and 14.2 percent for foreign banks. Under the “non‐traditional banking definition,” the productivity gain over the period was 2.9 percent for state banks, 9.5 percent for private banks and 17.0 percent for foreign banks.Research limitations/implicationsThe future research can extend the data set and may include more explanatory factors to characterize the bank forms that record the fastest productivity growth.Practical implicationsPrivate ownership appears to be more adaptive to new environment. Foreign banks can be used as a policy instrument to induce efficiency and productivity improvements in local banking industries. Liberalization of markets through competition boosts economic performance.Originality/valueIn analyzing impacts of reforms, the significance of inter‐temporal change should be tested to better guide regulators, investors and managers.