Goodness of governance effect on European banking efficiency

The main aim of this paper is to determine the limitations on the scope for the improvement of banking efficiency caused by European goodness of government specifically in the post-crisis period. A semiparametric bootstrap approach leads to the estimation of bias-corrected efficiencies and to their regression on goodness of governance dimensions and indicators. Estimations show that goodness of government, structured into selection process, formulation and implementation of policies and stakeholders' respect, exerts a positive and significant influence on European banking efficiency. In this line, an innovative measure for the goodness of governance effect on efficiency is suggested by comparing metafrontier and specific frontiers estimates. Deviations determine a limitation on the scope for the improvement of banking efficiency, which is specifically relevant for countries with low goodness of government.