Journal of Financial Services Research

, Volume 46, Issue 3, pp 271–294 | Cite as

Bank Productivity Change and Off-Balance-Sheet Activities Across Different Levels of Economic Development



This study analyses the impact of OBS on banking productivity growth using a sample of 712 banks from 84 countries between 1999 and 2006. Our international setting allows us to analyse differences on the performance on banking institutions among various groups of countries with different economic and financial innovations development. We estimate cost and profit productivity growth using a parametric approach that decomposes the change in risk-adjusted cost and profit performance into two main components: changes in business conditions and changes in productivity. The latter one is decomposed further into the change in best practice and change in (in)efficiency.


Banks Efficiency Productivity Regulations 

Jel Classification

O16 O57 G21 



The first author acknowledges financial support from Ministerio de Economía y Competitividad, Dirección General de Investigación y Gestión del Plan de I+D+i, grant reference ECO2011-26996. We would like to thank an anonymous referee and Haluk Unal (Editor) for various comments that helped us improve earlier versions of the manuscript. Any remaining errors are our own.


  1. Altunbas Y, Chakravarty SP (2001) Frontier cost functions and bank efficiency. Econ Lett 72:233–240CrossRefGoogle Scholar
  2. Altunbas Y, Gardener EPM, Molyneux P, Moore B (2001) Efficiency in European banking. Eur Econ Rev 45:1931–1955CrossRefGoogle Scholar
  3. Barth JR, Caprio G, Levine R (2001) The regulation and supervision of bank around the world: a new database. In: Litan RE, Herring R (eds) Integrating emerging market countries into the global financial system. Brookings-Wharton Papers in Financial Services, Brooking Institution Press, WashingtonGoogle Scholar
  4. Barth JR, Caprio G, Levine R (2004) Bank regulation and supervision: what works best? J Financ Intermed 13:205–248Google Scholar
  5. Barth J, Caprio G, Levine R (2006) Rethinking bank regulation: till angels govern. Cambridge University Press: New YorkGoogle Scholar
  6. Barth JR, Caprio G Jr., Levine R (2007) The microeconomic effects of different approaches to bank supervision. In: Haber S, North D, Weingast B (eds) The politics of financial development. Stanford University PressGoogle Scholar
  7. Barth JR, Caprio G, Levine R (2008) Bank regulations are changing: for better or worse?, No. 4646, World Bank Policy Research Working PaperGoogle Scholar
  8. Battese GE, Coelli TJ (1995) A model for technical inefficiency effects in a stochastic frontier production function for panel data. Empir Econ 20:325–332CrossRefGoogle Scholar
  9. Bauer PW, Berger AN, Ferrier GD, Humphrey DB (1998) Consistency conditions for regulatory analysis of financial institutions: a comparison of frontier efficiency methods. J Econ Bus 50:85–114CrossRefGoogle Scholar
  10. Beck T, Demirguç-Kunt A, Levine R (2000) A new database on financial development and structure. World Bank Econ Rev 14:597–605Google Scholar
  11. Beck T, Demirguc-Kunt A, Levine R (2006) Bank concentration, competition, and crises: first results. J Bank Finance 30:1581–1603CrossRefGoogle Scholar
  12. Berger AN, DeYoung R (2001) The effects of geographic expansion of bank efficiency. J Financ Serv Res 19:163–184CrossRefGoogle Scholar
  13. Berger AN, Humphrey DB (1997) Efficiency of financial institutions: international survey and directions for future research. Eur J Oper Res 98:175–212CrossRefGoogle Scholar
  14. Berger AN, Mester LJ (1997) Inside the black box: what explains differences in the efficiencies of financial institutions? J Bank Finance 21:895–947CrossRefGoogle Scholar
  15. Berger AN, Mester LJ (2003) Explaining the dramatic changes in performance of US banks: technological change, deregulation, and dynamic changes in competition. J Financ Intermed 12:57–95CrossRefGoogle Scholar
  16. Bonin J, Wachtel P (2003) Financial sector development in transition economies: lessons from the first decade. Financ Market Inst Instrum 12:1–66CrossRefGoogle Scholar
  17. Bos JWB, Kolari JW (2005) Large bank efficiency in Europe and the United States: are there economic motivations for geographic expansion in financial services? J Bus 78:1555–1592CrossRefGoogle Scholar
  18. Casu B, Girardone C (2005) An analysis of the relevance of off-balance sheet items in explaining productivity change in European banking. Appl Financ Econ 15:1053–1061CrossRefGoogle Scholar
  19. Casu B, Girardone C, Molyneux P (2004) Productivity change in European banking: a comparison of parametric and non-parametric approaches. J Bank Finance 28:2521–2540CrossRefGoogle Scholar
  20. Chaffai ME, Dietsch M, Lozano-Vivas A (2001) Technological and environmental differences in the European banking industries. J Financ Serv Res 19:147–162Google Scholar
  21. Chronopoulos DK, Girardone C, Nankervis JC (2013) How do stock markets in the US and Europe price efficiency gains from Bank M&As? J Financ Serv Res 43:243–263CrossRefGoogle Scholar
  22. Clark AJ, Siems TF (2002) X-efficiency in banking: looking beyond the balance sheet. J Money Credit Bank 34:987–1013CrossRefGoogle Scholar
  23. Coelli TJ, Prasada Rao DS, O’Donnell CJ, Battese GE (2005) An introduction to efficiency and productivity analysis, 2nd edn. Springer, USAGoogle Scholar
  24. Delis MD, Molyneux P, Pasiouras F (2011) Regulation and productivity growth in banking: evidence from transition countries. J Money Credit Bank 43:735–764CrossRefGoogle Scholar
  25. Demirguc-Kunt A, Detragiache E (2002) Does deposit insurance increase banking system stability? An empirical investigation. J Monet Econ 49:1373–1406CrossRefGoogle Scholar
  26. Demirguc-Kunt A, Laeven L, Levine R (2004) Regulations, market structure, institutions, and the cost of financial intermediation. J Money Credit Bank 36:593–622CrossRefGoogle Scholar
  27. Demsetz H (1973) Industry structure, market rivalry, and public policy. J Law Econ 16:1–9Google Scholar
  28. DeYoung R, Hasan I (1998) The performance of de novo commercial banks: a profit efficiency approach. J Bank Finance 22:565–587CrossRefGoogle Scholar
  29. DeYoung RE, Hughes JP, Moon C-G (2001) Efficient risk-taking and regulatory covenant enforcement in a deregulated banking industry. J Econ Bus 53:255–282CrossRefGoogle Scholar
  30. Fernandez A, Gonzalez F (2005) How accounting and auditing systems can counteract risk-shifting of safety nets in banking: some international evidence. J Financ Stabil 1:466–500CrossRefGoogle Scholar
  31. Fethi MD, Pasiouras F (2010) Assessing bank efficiency and performance with operational research and artificial intelligence techniques: a survey. Eur J Oper Res 204:189–198CrossRefGoogle Scholar
  32. Halkos GE, Salamouris DS (2004) Efficiency measurement of the Greek commercial banks with the use of financial ratios: a data envelopment analysis approach. Manag Account Res 15:201–224CrossRefGoogle Scholar
  33. Hassan MK, Karels GV, Peterson MO (1993) Off-balance sheet activities and bank default-risk premia: a comparison of risk measures. J Econ Financ 3:69–83CrossRefGoogle Scholar
  34. Hicks JR (1935) Annual survey of economic theory: the theory of monopoly. Econometrica 3:1–20Google Scholar
  35. Kasman A, Yildirim C (2006) Cost and profit efficiencies in transition banking: the case of new EU members. Appl Econ 38:1079–1090Google Scholar
  36. Koetter M (2006) Measurement matters-alternative input price proxies for bank efficiency analyses. J Financ Serv Res 30:199–227CrossRefGoogle Scholar
  37. Kwan S, Eisenbeis RA (1997) Bank risk, capitalization, and operating efficiency. J Financ Serv Res 12:117–131CrossRefGoogle Scholar
  38. Lepetit L, Nys E, Rous P, Tarazi A (2008) Bank income structure and risk - An empirical analysis of European banks. J Bank Financ 32:1452–1467CrossRefGoogle Scholar
  39. Lozano-Vivas A, Pasiouras F (2010) The impact of non-traditional activities on the estimation of bank efficiency: international evidence. J Bank Financ 34:1436–1449CrossRefGoogle Scholar
  40. Lozano-Vivas A, Pastor JT, Hasan I (2001) European bank performance beyond country borders: what really matters? Eur Finance Rev 5:141–165Google Scholar
  41. Maudos J, Pastor JM, Perez F, Quesada J (2002) Cost and profit efficiency in European banks. J Int Finan Markets, Inst Money. 12:33–58Google Scholar
  42. Molyneux P, Williams J (2005) The productivity of European Co-operative Banks. Manag Financ 31:26–35Google Scholar
  43. Pasiouras F, Tanna S, Zopounidis C (2009) The impact of banking regulations on banks’ cost and profit efficiency: cross-country evidence. Int Rev Financ Anal 18:294–302CrossRefGoogle Scholar
  44. Pastor JM, Perez F, Quesada J (1997) Efficiency analysis in banking firms: an international comparison. Eur J Oper Res 98:395–407CrossRefGoogle Scholar
  45. Radić N, Fiordelisi F, Girardone C (2012) Efficiency and risk-taking in pre-crisis investment banks. J Financ Serv Res 41:81–101CrossRefGoogle Scholar
  46. Rogers KE (1998) Non-traditional activities and the efficiency of US commercial banks. J Bank Financ 22:467–482CrossRefGoogle Scholar
  47. Sealey CW Jr, Lindley J (1977) Inputs, outputs, and a theory of production and cost at depository financial institutions. J Finance 32:1251–1266CrossRefGoogle Scholar
  48. Stiroh KJ (2000) How did bank holding companies prosper in the 1990s? J Bank Financ 24:1703–1745Google Scholar
  49. Stiroh KJ (2004) Diversification in banking: is noninterest income the answer? J Money Credit Bank 36:853–882CrossRefGoogle Scholar
  50. Stiroh KJ (2006) New evidence on the determinants of bank risk. J Financ Serv Res 30:237–263CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.Department of EconomicsUniversity of MalagaMalagaSpain
  2. 2.Surrey Business SchoolUniversity of SurreyGuildfordUK
  3. 3.Financial Engineering Laboratory, Department of Production Engineering & ManagementTechnical University of CreteChaniaGreece

Personalised recommendations