Faculty Scholarship 1994 - Present

Post-Entry Performance of DeNOVO Banks in Turkey

Employing a non-parametric frontier method, we investigate the technical X-efficiency and productivity growth of de novo banks vis-a-vis established banks in an era of financial liberalization (1981 to 1996) in Turkey. The purpose of the paper is to study the performance pattern of de novo banks upon establishment. Overall results suggest that de novo banks tend to outperform established banks in all aspects of productive efficiency. Productivity, technology and efficiency also tend to grow faster in de novo banks than in established banks. Most of these improvements, however, take place in the early stages of operation. As these banks approach the age of ten, diseconomies of scale issues begin to surface, implying that economies of scale opportunities from expanding production scales are quite limited in the Turkish banking market. We also found that foreign entries are more efficient and productive than domestic entries, suggesting banking authorities in emerging markets may use foreign entries to boost the efficiency performance of their banks.