How a regulatory capital requirement affects banks' productivity: an application to emerging economies

Duygun, Meryem; Shaban, Mohamed; Sickles, Robin C.; Weyman-Jones, Thomas

Abstract

© 2015, Springer Science+Business Media New York. This paper presents a novel approach to measure efficiency and productivity decomposition in the banking systems of emerging economies with a special focus on the role of equity capital. We model the requirement to hold levels of a fixed input, i.e. equity, above the long run equilibrium level or, alternatively, to achieve a target equity-asset ratio. To capture the effect of this under-leveraging, we allow the banking system to operate in an uneconomic region of the technology. Productivity decomposition is developed to include exogenous factors such as policy constraints. We use a panel data set of banks in emerging economies during the financial upheaval period of 2005–2008 to analyse these ideas. Results indicate the importance of the capital constraint in the decomposition of productivity.

Citation

Duygun, M., Shaban, M., Sickles, R. C., & Weyman-Jones, T. (2015). How a regulatory capital requirement affects banks' productivity: an application to emerging economies. Journal of productivity analysis, 44(3), 237-248. https://doi.org/10.1007/s11123-015-0451-1

• Journal Article Type: Article
• Acceptance Date: Dec 1, 2014
• Online Publication Date: Jun 4, 2015
• Publication Date: 2015-12
• Deposit Date: Dec 15, 2015
• Publicly Available Date: Nov 23, 2017
• Journal: Journal of productivity analysis
• Print ISSN: 0895-562X
• Publisher: Springer Verlag
• Peer Reviewed: Peer Reviewed
• Volume: 44
• Issue: 3
• Pages: 237-248
• DOI: https://doi.org/10.1007/s11123-015-0451-1
• Keywords: Economics and Econometrics; Social Sciences (miscellaneous); Business and International Management
• Public URL: https://hull-repository.worktribe.com/output/382650
• Publisher URL: http://link.springer.com/article/10.1007%2Fs11123-015-0451-1
• Additional Information: Authors' accepted manuscript of article published in: Journal of productivity analysis, 2015, v.44, issue 3. The final publication is available at Springer via http://dx.doi.org/10.1007/s11123-015-0451-1
• Contract Date: Nov 23, 2017