Cost Efficiency of French Commercial Banks : Domestic Versus Foreign Banks

The present paper investigates efficiency levels of commercial domestic versus foreign banks in France between 2000 and 2007. Using Stochastic Frontier Analysis, we also shed light on the determinants of cost efficiency of 62 domestic and 40 foreign banks. Our results indicate that foreign banks exhibit higher cost efficiency than domestic banks. This finding contradicts previous empirical literature, concluding an advantage of cost efficiency for domestic banks in developed countries such as France (Berger et al. 2000). This suggests the decision to practice retail banking activities by domestic banks implies high fixed costs