Efficiency in Turkish banking: post-restructuring evidence. Issue 2 (26th January 2017)

• Record Type: Journal Article
• Authors: Davutyan, Nurhan; Yildirim, Canan
• Is Part Of: European journal of finance. Volume 23:Issue 2(2017)
• Page Start: 170
• Page End: 191
• Publication Date: 2017-01-26
• Subjects: Turkish banking -- efficiency -- competition -- shadow prices -- Weak Axiom of Profit Maximization -- data envelopment analysis; G21 -- D20 -- C14; Finance -- Periodicals; Finance -- Europe -- Periodicals; International finance -- Periodicals; 332.094
• DOI: 10.1080/1351847X.2015.1049282
• Languages: English
• ISSNs: 1351-847X

Abstract

Abstract : Turkish banking sector went through a significant restructuring process in the aftermath of the country's financial crisis of 2000–2001. In this paper, we analyze the evolution of banking performance using a novel approach due to Ray [(2007). "Shadow Profit Maximization and a Measure of Overall Inefficiency." Journal of Productivity Analysis 27, 231–236]. We derive 'shadow unrealized profit scores' as well as 'shadow input–output prices' for each year and bank in the sector from 2002 to 2011. We argue these scores operationalize the Hicksian concept of 'monopolistic quiet life'. We provide some evidence the sector came closer to the 'zero profit condition' as well as displaying a closer approximation to the 'law of one price' over time. We show the variability of these 'shadow prices' essentially coincides with that of corresponding actual prices. We utilize shadow price information to show that business models and competitive choices of banks differ across ownership types with foreign banks competing on the broadest front compared to state-owned and privately owned Turkish banks.