Abstract
Ownership structure and the performance of banking industry have been long considered as a matter of debate. Despite of differences in perspective, both “development view” and “politics view” approve the desire of governments to control financial institutions through their ownership structure. This paper adopts the two-stage stochastic frontier analysis (SFA) to examine the relation between ownership structure and bank’s efficiency in two long historic communism countries – China and Vietnam with the consideration of some political factors. Our result consistently indicates that banks with foreign-controlled shareholders in both countries can increase their efficiency significantly. Additionally, we uncover an interesting phenomenon that is during the election years, state-owned banks in China and Vietnam outperform the others. These banks are also the most beneficiaries from the economic expansion. Finally, meta-frontier is utilized to compare the relative performance of banking industry in these two countries.
Highlights
Banking industry may differ from other traditional business, though its contribution to the determination of long-run economic growth is conspicuous (Pradhan, et al, 2014)
State-owned banks (SOBs), to a certain extended can be partially considered as an instrument that is of assistance for political purposes (Jackowicz et al, 2013)
This paper aims to examine the impact of politics - ownership nexus toward banking industry in these two countries
Summary
Banking industry may differ from other traditional business, though its contribution to the determination of long-run economic growth is conspicuous (Pradhan, et al, 2014). Policymakers, investors and even world financial institutions have been encouraged to investigate the efficiency and productivity of banking industry. A considerable amount of cross-sectional studies suggests an association between bank’s efficiency and exogenous determinants, such as risks, internationalization, or corporate governance. Most of them concur that governments generally manipulate the operations of state-owned financial institutions, which play a critical role in the economy, in order to achieve political purposes. State-owned banks (SOBs), to a certain extended can be partially considered as an instrument that is of assistance for political purposes (Jackowicz et al, 2013). There is a need for deliberate consideration of political environment in order to fully comprehend the role of banks in financial system
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