This paper analyzes the efficiency of the Brazilian banking sector over the post-privatization period of 2000-2007. We employ a Bayesian stochastic frontier approach, which provides exact efficiency estimates and confidence intervals and thus, allows an accurate comparison across institutions and bank groups. The results suggest that large banks are the most cost and profit efficient, supportin...

This paper uses a large panel of financial flow data from banks to assess how institutions affect international lending. First, employing a time varying composite institutional quality index in a fixed-effects framework, the paper shows that institutional improvements are followed by significant increases in international finance. Second, cross-sectional models also show a strong effect of init...

We present a theoretical model of moral hazard and adverse selection in an imperfectly competitive loans market that is suitable for application to Africa. The model allows for variation in both the level of contract enforcement (depending on the quality of governance) and the degree of market segmentation (depending on the level of ethnic fractionalization). The model predicts a specific form ...

The paper analyzes the cooperative determination of the interchange fee by member banks in a payment card association. The interchange fee is the “access charge” paid by the merchants’ banks, the acquirers, to cardholders’ banks, the issuers. The paper develops a framework in which banks and merchants may have market power and consumers and merchants decide rationally on whether to buy or accep...

We calculate abnormal stock returns for Japanese non-financial companies around major events associated with the banking crisis (1995–2000), and find that not all companies were equally sensitive to the malaise of the banking sector: the most affected were small, leveraged, low-tech companies with low credit ratings and low market to book ratios. This is consistent with ‘‘credit crunch’’ theori...

In this paper we investigate whether technical efficiency is an important ex-ante predictor of business failure. We use samples of French textiles, wood, and R&D companies to obtain efficiency estimates for individual firms in each industry. These efficiency measures are derived from a directional technology distance function constructed empirically using non-parametric Data Envelopment Analysi...

Real interest and inflation rates have been very low in many industrialized countries since the Great Recession. In this paper, a mechanism of low and floating real interest and inflation rates is examined based on the concept a “Nash equilibrium of a Pareto inefficient path” and the law of motion for trend inflation. I show that, because the link between the marginal product of capital and the...

‘‘New Tigers” (including city commercial banks) outperform state-owned commercial banks burdened with non-performing loans from unprofitable state-owned enterprises. We study whether this is solely due to superior corporate governance (multiple shareholders versus total government ownership) or also to the favorable environment (the New Tigers target affluent China, while state-owned commercial...

This paper addresses the impact of dynamic risk management on bank risk taking. We show that when banks earn rents only from deposit insurance and can engage in risk management it is no longer in their interests to maximize risk; instead, they moderate their risk to increase their chances of survival. The paper also shows that the opportunity for risk management may change the impact of capital...

We propose a model in which firms compete to attract better managers by using corporate governance as part of an optimal executive compensation scheme. Higher governance decreases the cost of taking disciplinary actions against managers, but when managerial talent is scarce, competition among firms to attract better managers implies that firms under-invest in governance. The reason is that mana...