X-efficiency and international banking : micro-evidence from OECD-based banks

This paper is aimed at exploring how X-efficiency or management quality is associated with one of the most vivid forms of international banking, that is, entering new markets by setting up foreign subsidiaries. The analysis focuses on the supposition that management quality ought to be one of the foremost firm-specific factors likely to drive a bank's aspiration of becoming international. We tackle this topic by applying an ordered probit model to a dataset covering more than 1,000 OECD-based universal banks over the period from 1996 to 2000. The analysis yields strong empirical evidence in favor of the view that the higher the level of Xefficiency or managerial quality of a bank the larger the likelihood of becoming a bank with a strong international orientation.