Efficiency and Risk-Taking Behaviour of Ghanaian Banks

Purpose – This paper examines the interaction of efficiency and bank risk taking in the Ghanaian banking industry. Design/methodology/approach – We relate risk taking to price competitiveness, foreign ownership and cost efficiency and other control variables. Cost-inefficiency scores from a stochastic frontier model are used, and a Lerner price index is employed to proxy for market power. Findings – Our results suggest that market power affects risk taking when conditioned on foreign ownership, but foreign bank risk-taking behaviour is not statistically different from local banks. Cost inefficiency diminishes bank soundness. We also find that industry concentration discourages greater risk taking. Originality/value – Our study extends the views on risk taking and competition among banks in Ghana, which throws more light from an emerging economy perspective.