Financial liberalization and banking efficiency: empirical evidence from Pakistan banking industry

Abstract

This study attempts to evaluate the impact of the financial liberalization and deregulation policy regimes of the banking sector efficiency in the Pakistan. The dependent variables are Return on asset (ROA) and return on equity (ROE); while independent variables are turn over efficiency, dividend to turn over, loans efficiency and capital expenditure to turnover. Time frame of this study ranges from FY2008 to FY2016. Secondary Data set is used; extracted from financial statements of commercial banks. For this purpose, sixteen banks were chosen and classified as small medium and large banks under asset classification. During analysis, Hausman Test and Fixed Effect model is used. The study concludes that dividend to turnover is the only factor which has positive role in the improvement of banks performance in case of large banks, but remain insignificant in case of medium and small size banks. Further, this study concludes, that financial liberalization has failed to improve the performance of banking sector in Pakistan.