Impact of Ownership, Competition, and Management Practices on Efficiency of Banking Sector

In the 1990s the financial sector of Pakistan underwent massive reforms. The primary aim of restructuring was to privatize state-owned institutions, abolish entry barriers for new players, and consequently increase the efficiency of the whole system. This study uses an unbalanced panel of 21 commercial banks listed at Pakistan stock exchange throughout 2000 to 2017 from “BankFocus” and “Bloomberg”. This research measures the effect of ownership, competition, and management practices on banks efficiency. The authors found a higher efficiency of private banks in comparison to state-owned counterparts. The empirical analysis suggests that an increase in foreign ownership and institutional ownership impact positively on all measures of efficiency. The relationship between competition and efficiency supports “competition-efficiency hypothesis” and proposes regulatory measures to regulate the market further. Additionally, banks with a higher standard of management practices tend to be more efficient. These findings imply that there is a need to regulate the bigger banks and ease the market entry for foreign and institutional owners, who brings superior managerial standards and hence efficiency