Abstract:
This study empirically examines the effect of foreign banks entry on banking
efficiency scores, using the truncated regression data envelopment analysis
model for 25s banks in Ghana, over a 6‐year period (2010–2015). We decompose
the efficiency scores into three (technical, cost, and allocative efficiency),
and the results indicate that banks in Ghana are marginally inefficient in operating
closer to their optimal capacity. The findings show that the inputoriented
model slacks are needed to push an inefficient bank closer to where
an efficient bank is positioned. From the results, an immediate and a shortterm
entry of foreign banks have a consistent negative relationship with both
technical‐ and cost‐efficiency scores whereas long‐term entry of foreign banks
shows an inconsistent relationship with the three banking efficiency scores.
Thus, the drive towards a positive impact of foreign banks entry on the three
efficiency scores is dependent on the form of banking efficiency considered
and the interaction term between competitive banking environment (competition)
and foreign banks' entry. The study suggests that policymakers and managers
in emerging markets should improve on their bank efficiencies in both a
competitive banking environment and during periods of foreign bank entry.
Moreover, managers of banks should make adjustment to their input resources
in order to cope with new banking technologies from foreign bank entry—
thereby improving banking efficiencies.
