Cost Efficiency of French Commercial Banks: Domestic versus Foreign Banks

By Rouissi, Raoudha Béjaoui; Bouzgarrou, Houssam | The International Journal of Business and Finance Research, October 1, 2012 | Go to article overview

Cost Efficiency of French Commercial Banks: Domestic versus Foreign Banks


Rouissi, Raoudha Béjaoui, Bouzgarrou, Houssam, The International Journal of Business and Finance Research


ABSTARCT

The present paper investigates efficiency levels of commercial domestic versus foreign banks in France between 2000 and 2007. Using Stochastic Frontier Analysis, we also shed light on the determinants of cost efficiency of 62 domestic and 40 foreign banks. Our results indicate that foreign banks exhibit higher cost efficiency than domestic banks. This finding contradicts previous empirical literature, concluding an advantage of cost efficiency for domestic banks in developed countries such as France (Berger et al. 2000). This suggests the decision to practice retail banking activities by domestic banks implies high fixed costs.

JEL: G21; C23; D24

KEYWORDS: efficiency, domestic banks, foreign banks

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

The transposition of the 1988s European Directive, on the free movement of capital into national law, eliminated lending restrictions and currency controls and removed many administrative barriers that had compartmentalized the credit institution business in European countries. This had a large impact on traditional banking intermediation business. It gave rise to disintermediation in lending and an alignment of bank lending rates and terms to those of the market. Furthermore, gradual liberalization of financial markets that started in the mid-1980s in France increased competition from non-banks, such as mutual funds and insurance companies. Most notably, it stimulated competition from markets. An important resulting change in the French banking industry was a substantial decrease in the population of banks. At the same time, the number of foreign owned banks in France rose between 1984 and 2001.

Greater openness in the French banking market includes increased openness to foreign-owned banks, with the intention of improving competitiveness and efficiency of the financial system. However, Weill (2006b) notes that reduced performance of French banks allows entry of foreign banks in France, since foreign banks are able to significantly affect the performance of domestic banks. Poor results of French banks signify the possibility of easier entry of foreign banks on the French market.

This study compares the efficiency of foreign-owned banks operating in France with French domestic banks of the French banking system. The objective is to determine if foreign banks were more or less cost efficient than domestic banks during our estimation period of 2000-2007. Thus, the purpose is to investigate the efficiency levels of commercial domestic versus foreign banks in France by comparing basic accounting ratios and the stochastic cost frontier analysis (SFA). We analyze cost efficiency by using an unbalanced sample, including 62 domestic and 40 foreign banks over the period 2000-2007.

The outline of this paper is as follows. Section 2 provides an overview of previous studies that have considered; (i) the efficiency of the French banking system and (ii) the efficiency of foreign banks. Section 3 discusses the data and methodology employed, while the fourth section discusses the results. The final section provides conclusions.

LITERATURE REVIEW

There are two relevant streams of literature to this study, (i) those dealing with bank efficiency in France, and (ii) those comparing foreign bank efficiency with domestic bank efficiency. The literature on efficiency was applied to banks only during the 90s. A small number of studies focused on the efficiency of French banks. We can however distinguish two categories: studies that focus entirely on French banks; and studies consisting of international comparisons of bank efficiency.

Studies on French banking efficiency were performed by Dietsch (1996), Dietsch and Weill (1999) and Weill (2006b). Dietsch (1996) uses a parametric method, the Distribution Free Approach to estimate the cost efficiency of 375 commercial and savings banks, over the period 1988-1992. The results show the existence of an average cost efficiency of 56. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

Cost Efficiency of French Commercial Banks: Domestic versus Foreign Banks
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.