Efficiency and scale economies in transition economies - Evidence from Poland and the Czech Republic

Kasman A.

EMERGING MARKETS FINANCE AND TRADE, vol.41, no.2, pp.60-81, 2005 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 41 Issue: 2
  • Publication Date: 2005
  • Doi Number: 10.1080/1540496x.2005.11052605
  • Journal Name: EMERGING MARKETS FINANCE AND TRADE
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.60-81
  • Keywords: cost inefficiency, economies of scale, transition economies, BANKING EFFICIENCY, FINANCIAL INSTITUTIONS, COUNTRIES, EUROPE, SECTOR
  • Dokuz Eylül University Affiliated: Yes

Abstract

This paper examines the cost efficiency and scale economies of banks operating in Poland and the Czech Republic during the period from 1995 to 2000. A common cost frontier with country-specific environmental variables is estimated for a panel of fifty-four banks. A stochastic frontier model is used to estimate the cost efficiency and economies of scale. The results show the importance of environmental variables in the definition and specification of the common frontier It is found that Polish banks are, on average, more efficient than Czech banks. The results further suggest that foreign banks operating in the Czech banking sector have significantly higher efficiency levels than those of domestic banks. Finally, there is evidence of significant economies of scale for small and medium-sized banks, but diseconomies of scale for large-sized banks.