Table of Contents

Research Handbook on International Banking and Governance

Research Handbook on International Banking and Governance

Elgar original reference

Edited by James R. Barth, Chen Lin and Clas Wihlborg

The contributors – top international scholars from finance, law and business – explore the role of governance, both internal and external, in explaining risk-taking and other aspects of the behavior of financial institutions. Additionally, they discuss market and policy features affecting objectives and quality of governance. The chapters provide in-depth analysis of factors such as: ownership, efficiency and stability; market discipline; compensation and performance; social responsibility; and governance in non-bank financial institutions. Only through this kind of rigorous examination can one hope to implement the financial reforms necessary and sufficient to reduce the likelihood and severity of future crises.

Chapter 4: What Drives Bank Operating Efficiency? The Role of Bank Competition and Credit Information Sharing

Chen Lin, Yue Ma and Frank M. Song

Subjects: economics and finance, money and banking


Chen Lin, Yue Ma and Frank M. Song 4.1 INTRODUCTION Banking efficiency is essential for a well-functioning economy. Researches suggest that banks exert a first-order impact on economic growth and development (e.g., Levine, 1997). When banks operate efficiently by directing society’s savings toward those enterprises with highest expected social returns and monitoring them carefully after lending, society’s scarce resources are allocated more efficiently. This will in turn promote economic growth. By contrast, banks that simply operate with waste and inefficiency will slow economic growth and reduce society’s economic welfare. In this chapter, we study the effect of bank competition and credit information sharing on bank operation efficiency. Our study is motivated by the two recent global trends in the credit market. First, the unprecedented wave of consolidation of banks and financial institutions around the world in the decade 1998–2008 is intensifying the public policy and academic debates on the influences of concentration and competition in the banking sector (Berger et al., 2004).1 Second, information sharing registries are becoming increasingly important elements of the institutional framework necessary to support a well-functioning and modern banking system (Miller, 2003). Many countries around the world have started to establish information sharing agencies in the past decade.2 However, despite the great importance of the issue to both academics and policy makers, there is a lack of studies on the impacts of bank competition and information sharing and their interaction on bank operation efficiency. In this study, we use bank-level accounting data of nearly...

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