We employ the directional technology distance function and provide estimates of bank efficiency and productivity change across Central and Eastern European (CEE) countries and across banks with different ownership status for the period 1998–2003. Our results demonstrate the strong links of competition and concentration with bank efficiency. They also show that productivity for the whole region initially declined but has improved more recently with further progress on institutional and structural reforms. Input-biased technical change has been consistently positive throughout the entire period suggesting that the reforms have induced favorable changes in relative input prices and input mix. However we find evidence of diverging trends in productivity growth patterns across banking industries and that foreign banks outperform domestic private and state-owned banks both in terms of efficiency and productivity gains. Overall, we find that productivity change in CEE is driven by technological change rather than efficiency change.

This paper examines the relationship between bank lending rates and their cost of funds in New Zealand. Our results show that on average mortgage rates respond more quickly to changes in the cost of funds than base business lending rates. We also find an asymmetry in the initial (short-run) response of banks to changes in funding costs; in particular, our results show banks adjust mortgage rates downwards faster than upwards. The speed to which lending rates revert back to their equilibrium relationship with funding costs varies across the lending markets. We find the adjustment speed is faster when mortgage rates are below equilibrium, whereas it is slower when business lending rates are above long-run levels in relation to funding costs. Our analysis suggests that banks prefer the plain-vanilla type of lending such as mortgages in comparison to small business lending consistent with asymmetric information associated with business loans.

This paper investigates the relationship between capital structure, ownership structure and firm performance using a sample of French manufacturing firms. We employ non-parametric data envelopment analysis (DEA) methods to empirically construct the industry’s ‘best practice’ frontier and measure firm efficiency as the distance from that frontier. Using these performance measures we examine if more efficient firms choose more or less debt in their capital structure. We summarize the contrasting effects of efficiency on capital structure in terms of two competing hypotheses: the efficiency-risk and franchise-value hypotheses. Using quantile regressions we test the effect of efficiency on leverage and thus the empirical validity of the two competing hypotheses across different capital structure choices. We also test the direct relationship from leverage to efficiency stipulated by the Jensen and Meckling (1976) agency cost model. Throughout this analysis we consider the role of ownership structure and type on capital structure and firm performance.

We propose a flow-based explanation for two long-standing anomalies in empirical finance – Sell in May and the January effect. We find that mutual fund flows exhibit similar seasonal patterns as stock returns. After controlling for fund flows both calendar effects become insignificant. We provide new evidence on what drives this correlation. We show that return seasonality is due to unanticipated fund flow driven by uninformed (flow-motivated) retail investor trading. Active funds indicate flow-induced price pressure with a corresponding reversal of the effect, while passive funds suggest feedback trading instead. These seasonalities are remarkably pervasive, exhibiting little variation across different types of stocks, and are equally strong in periods of either high or low sentiment.