Merchant Banking
Cross Country Comparison of Efficiency in Investment Banking
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Nemanja Radić
University of Rome ’’Tor Vergata’’, Doctorate of Research in Banking and Finance, Via Columbia 2, Rome, Italy, e-mail:radic_n@yahoo.com
Franco Fiordelisi
University of Rome ’’Federico Caffè’’, Department of Management and Law, Rome, Italy, e-mail:fiordeli@uniroma3.it
Abstract
This paper aims to identify the framework for comparing investment banks efficiencies across nations. In order to overcome traditional limitations two methods are adopted: first, where separate frontiers are estimated to check for the existence of structural differences between the countries; and second method which accounts for the influences of environmental factors on the industry, by including indicator of these factors in a definition of a common frontier. We use translog cost and profit function in order to measure X-efficiency. Data set consist from more than 900 investment banks from G7 countries (US, UK, Japan, Italy, Germany, France and Canada) and Switzerland over the period 2000-2007.
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Motivation and Introduction
Investment banking industry on the world level has gone through incredible transformation due to cross border activities and consolidation. Today more and more banks are crossing international borders and providing services around world. Having in mind the business of investment banking and newest trends, we can say that efficiency of these types of banks is important for several reasons. First, investment bank engage in public and private market transaction for corporations, governments and investors, and by doing so is making benefits for all the participants. Second, efficiency of these institutions affect the financial markets and the ability of investment banks to minimize costs or maximizes profits is important both for them and for their clients. Third, by exercising their powers and by improving their efficiency, these institutions improve certain industry
.
Nemanja Radić
University of Rome ’’Tor Vergata’’, Doctorate of Research in Banking and Finance, Via Columbia 2, Rome, Italy, e-mail:radic_n@yahoo.com
Franco Fiordelisi
University of Rome ’’Federico Caffè’’, Department of Management and Law, Rome, Italy, e-mail:fiordeli@uniroma3.it
Abstract
This paper aims to identify the framework for comparing investment banks efficiencies across nations. In order to overcome traditional limitations two methods are adopted: first, where separate frontiers are estimated to check for the existence of structural differences between the countries; and second method which accounts for the influences of environmental factors on the industry, by including indicator of these factors in a definition of a common frontier. We use translog cost and profit function in order to measure X-efficiency. Data set consist from more than 900 investment banks from G7 countries (US, UK, Japan, Italy, Germany, France and Canada) and Switzerland over the period 2000-2007.
1
1.
Motivation and Introduction
Investment banking industry on the world level has gone through incredible transformation due to cross border activities and consolidation. Today more and more banks are crossing international borders and providing services around world. Having in mind the business of investment banking and newest trends, we can say that efficiency of these types of banks is important for several reasons. First, investment bank engage in public and private market transaction for corporations, governments and investors, and by doing so is making benefits for all the participants. Second, efficiency of these institutions affect the financial markets and the ability of investment banks to minimize costs or maximizes profits is important both for them and for their clients. Third, by exercising their powers and by improving their efficiency, these institutions improve certain industry