Does Growing Economy And Better Governance Impede Banking Efficiency? A DEA Analysis

Abstract

The paper estimates the efficiencies of Pakistani banking sector from 1998-2009. The analysis is further extended and regressed estimated banking efficiencies by using Data Envelopment Analysis (DEA), with macro-economic indicators and corporate governance variables of the banking sector. The purpose of this analysis is to determine the impact of overall economic conditions of a country and corporate governance practices on banking efficiencies. The results suggest that the corporate governance practices, like, board size, board independence have positive impact on overall banking sector efficiencies of Pakistan. Also, the GPD growth and interest rates have positive and negative impact on banking efficiencies respectively. The study has not found any significant difference in banking efficiencies of state-owned, private and foreign banks of Pakistan.