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Efficiency of the Banking Industry Structure in Korea *
Author(s) -
Shin Dong Jin,
Kim Brian H. S.
Publication year - 2011
Publication title -
asian economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.345
H-Index - 28
eISSN - 1467-8381
pISSN - 1351-3958
DOI - 10.1111/j.1467-8381.2011.02066.x
Subject(s) - profitability index , data envelopment analysis , restructuring , banking industry , consolidation (business) , economics , market share , market structure , profit (economics) , credit rationing , market concentration , industrial organization , monetary economics , business , financial system , microeconomics , finance , interest rate , mathematical optimization , mathematics
This paper analyzes whether the efficiency of the Korean banking industry has improved since the bank restructuring in 1997, and whether a bank with high efficiency has a larger market share. This paper uses an efficient structure hypothesis model to examine the relationship between the banks' efficiencies and their profitability. The data envelopment analysis method is applied to measure the efficiency and profitability of the banking industry in order to minimize possible bias due to the inflow of public funds for the bank consolidation. The two‐step Heckman selection method is used to correct for survivorship bias in the model. The derived result indicates that banks with higher efficiencies tend to record higher profit. Moreover, higher pure technological efficiency and scale efficiency have a positive effect on a bank's market share and concentration.