The impact of soft information and institutional quality on foreign bank efficiency – Evidence from ASEAN-5 countries

• Published in: International review of economics & finance 2021-07, Vol.74, p.23-32
• Main Authors: Chan, Sok-Gee, Aktan, Bora, Burton, Bruce, Koh, Eric H.Y.
• Format: Article
• Language: English
• Subjects: ASEAN-5; Data envelopment analysis; Foreign bank efficiency; Generalized method of moments; Institutional quality; Soft information
• ISSN: 1059-0560; 1873-8036
• DOI: 10.1016/j.iref.2021.01.017

This paper provides evidence regarding the impact of soft information on foreign bank efficiency in the ASEAN-5 market in the years following the Asian crisis. The analysis presented here develops previous literature by disaggregating soft information into five difference types and examining whether institutional quality (proxied for by host-country economic risk stability index) mitigates the impact. Using a three-stage estimation process we find that soft information does indeed affect foreign banks’ efficiencies in an identifiable manner, but host-country institutional quality acts so as to significantly lessen the effect. •The study explores the impact of soft information on overseas bank efficiency in ASEAN-5 countries.•The analysis employs a novel disaggregation of soft information into five variables.•The mitigating influence of institutional quality is investigated via an economic risk index proxy.•Soft information is found to impact foreign banks’ efficiencies in a systematic manner.•Host-country institutional quality acts in a way that lessens the effect.