Abstract:
There seem to be inconclusive results regarding the interactions between bank efficiency, default risk
and bank capital. This study tries to assess the dynamic interactions between efficiency estimates,
default risk and bank capital in the Ghanaian banking industry, using bank specific panel data for 20
Ghanaian banks from 2007 to 2015. We employ panel vector autoregressive models (VAR) models
which are estimated using generalized method of moments (GMM) to examine the interactions. The
results give an indication that bank default risk has negative and statistically significant impact on cost
efficiency but exerts only a mild influence on profit efficiency. However, there exist weaker evidence on
the impact of both efficiencies on bank default risk. Bank capital on the other hand has significant
positive impact on cost and profit efficiencies but both efficiencies have insignificant impact on bank
default risk.
