The impact of bank governance on bank performance in Pakistan

Burki, Abid A. and Ahmad, Shabbir (2011) The impact of bank governance on bank performance in Pakistan. The Lahore Journal of Economics, 16 Supp. Special Edition: 271-300.

Author Burki, Abid A.
Ahmad, Shabbir
Title The impact of bank governance on bank performance in Pakistan
Journal name The Lahore Journal of Economics   Check publisher's open access policy
ISSN 1811-5438
Publication date 2011-09
Sub-type Article (original research)
Open Access Status
Volume 16
Issue Supp. Special Edition
Start page 271
End page 300
Total pages 31
Place of publication Lahore, Pakistan
Publisher Lahore School of Economics
Language eng
Abstract This study attempts to investigate the impact of changes in bank governance on bank performance in Pakistan. Governance changes entail the privatization and restructuring of state-owned banks, and the merger and acquisition of private and foreign banks. Using the concept of frontier efficiency, we adopt an empirical framework that allows us to study the impact of all governance reform variables in the same model. First, we estimate a stochastic cost frontier model using unbalanced panel data on commercial banks for the period 1991-2005. Second, we decompose banks' total factor productivity (TFP) change into its different components, using the estimated frontier. In general, the results show an improvement in banks' cost efficiency following changes in bank governance. We note that governance changes bring about an improvement in banks' TFP vis-à-vis that of banks that did not undergo governance changes. We find a declining trend in TFP change (TFPC), which could be a consequence of the banking industry's increased profitability. We also note that bank selection for governance changes has a mixed effect on TFPC, while bank consolidation seems to be more effective in improving TFPC.
Keyword Bank reform
Total factor productivity
Stochastic frontier model
Q-Index Code C1
Q-Index Status Provisional Code
Institutional Status UQ

Document type: Journal Article
Sub-type: Article (original research)
Collection: School of Economics Publications
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