Determinants of bank efficiency in developed (G7) and developing (E7) countries: role of regulatory and economic environment

Nasim, Asma ORCID: https://orcid.org/0000-0002-3521-5584, Nasir, Muhammad Ali ORCID: https://orcid.org/0000-0003-2779-5854 and Downing, Gareth (2024) Determinants of bank efficiency in developed (G7) and developing (E7) countries: role of regulatory and economic environment. Review of Quantitative Finance and Accounting. ISSN 0924-865X

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Abstract

Efficiency is one of the key factors promoting the long-term performance and sustainability of the banking industry. In this context, this paper investigates the implications of the regulatory environment, macroeconomic factors, monetary conditions, and uncertainty for the banking sectors’ operating as well as investment efficiencies. Using data from G7 and E7 countries from 2001 to 2020, we employ a set of empirical techniques, including Fixed Effects, Random Effects, Panel Fully Modified Least Squares, Panel Dynamic Least Squares and Generalized Method of Moments. Our key findings show that leverage, capital adequacy, monetary conditions, economic growth, price stability as well as exchange rate stability and uncertainty have substantial effects on bank efficiency, with notable differences between impact on operational and investment efficiencies and developed (G7) and developing (E7) economies.