Financial deregulation and total factor productivity change: An empirical study of Turkish commercial banks

Ihsan Isik, M. Kabir Hassan

Research output: Contribution to journalArticlepeer-review

184 Scopus citations

Abstract

In January 1980, a new liberal economic policy was adopted in Turkey to promote financial market development and increase the efficiency and productivity of the financial sector by fostering competition among banks. As a result of this policy, the Turkish banking system witnessed a series of legal, structural and institutional changes throughout the 1980s. To enhance their competitive viability, Turkish banks responded by streamlining their operations and investing in new technology. Utilizing a DEA-type Malmquist Total Factor Productivity Change Index, we examine productivity growth, efficiency change, and technical progress in Turkish commercial banks during the deregulation of financial markets in Turkey. We found that all forms of Turkish banks, although in different magnitudes, have recorded significant productivity gains driven mostly by efficiency increases rather than technical progress. Efficiency increases, however, were mostly owing to improved resource management practices rather than improved scales. Our results also indicate that private banks began to close their performance gap with public banks in the new environment.

Original languageEnglish (US)
Pages (from-to)1455-1485
Number of pages31
JournalJournal of Banking and Finance
Volume27
Issue number8
DOIs
StatePublished - Aug 1 2003

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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