Abstract

This paper aims to examine the effect of competition on the technical efficiency of Middle Eastern and North Africa (MENA) banks during the period 2004-2014. To do so we use the two-stage bootstrap approach introduced by Simar and Wilson (2007). In the first stage, efficiencies scores were obtained using Data Envelopment Analysis (DEA) with Bootstrap technique to control for potential bias. In the second stage, the bootstrap truncated regression was used to assess the effect of competition on bank efficiencies. Furthermore, we utilize Lerner index to measure competition at bank level. Using a sample of 88 banks from thirteen MENA countries, we find that the technical efficiency with bias correction shows no obvious trend during the period of the study, however, the level of efficiency varies significantly across countries. In addition, we find a negative relationship between competition and technical efficiency which supports the information generation hypothesis and rejects the quiet life hypothesis. To the best of our knowledge, this is the first study that examines the effect of competition on bank efficiency in MENA banking industry using the double bootstrapping-DEA approach.

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