Edited by James R. Barth, Chen Lin and Clas Wihlborg
Chapter 4: What Drives Bank Operating Efficiency? The Role of Bank Competition and Credit Information Sharing
Chen Lin, Yue Ma and Frank M. Song
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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