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The effect of building society demutualisation on levels of efficiency at large UK commercial banks

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Author Info

  • Robert Webb
  • Cormac Bryce
  • Duncan Watson
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    Abstract

    Purpose – This paper aims to investigate the effect of UK building society demutualisation on levels of efficiency at the largest five commercial banks in the UK. Design/methodology/approach – This research utilises data envelopment analysis (DEA) within a rarely adopted windows framework to analyse efficiency. The study also incorporates a novel risk proxy in the profit-orientated approach to determine DEA input/output which proves a useful innovation to the methodology. Findings – The overall aggregate results suggest that converting building societies outperformed their bank counterparts in all areas of efficiency and that scale efficiency dominates pure technical efficiency. Interestingly, the results also indicate that the level at which institutions continue to find economies of scale had increased when compared to previous research. Originality/value – The period of building society demutualisation offers an empirical opportunity to examine deregulation upon market participants. It is felt that this study offers academics, regulators and participants within the financial services environment an insight into the efficiency impact of deregulation.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Financial Regulation and Compliance.

    Volume (Year): 18 (2010)
    Issue (Month): 4 (November)
    Pages: 333-355

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    Handle: RePEc:eme:jfrcpp:v:18:y:2010:i:4:p:333-355

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    Web page: http://www.emeraldinsight.com

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    Related research

    Keywords: Banking; Building societies; Data analysis; Performance management;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Maudos, Joaquin & Fernandez de Guevara, Juan, 2004. "Factors explaining the interest margin in the banking sectors of the European Union," Journal of Banking & Finance, Elsevier, vol. 28(9), pages 2259-2281, September.
    2. Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
    3. Drake, Leigh & Hall, Maximilian J.B. & Simper, Richard, 2006. "The impact of macroeconomic and regulatory factors on bank efficiency: A non-parametric analysis of Hong Kong's banking system," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1443-1466, May.
    4. Rasmusen, Eric, 1988. "Mutual Banks and Stock Banks," Journal of Law and Economics, University of Chicago Press, vol. 31(2), pages 395-421, October.
    5. Allen N. Berger & David B. Humphrey, 1997. "Efficiency of financial institutions: international survey and directions for future research," Finance and Economics Discussion Series 1997-11, Board of Governors of the Federal Reserve System (U.S.).
    6. Gardener Edward & Howcroft Barry & Williams Jonathan, 1999. "The New Retail Banking Revolution," The Service Industries Journal, Taylor & Francis Journals, vol. 19(2), pages 83-100, April.
    7. Valnek, Tomas, 1999. "The comparative performance of mutual building societies and stock retail banks," Journal of Banking & Finance, Elsevier, vol. 23(6), pages 925-938, June.
    8. Simper Richard, 1998. "Economies of Cost in the UK Building Society Industry," The Service Industries Journal, Taylor & Francis Journals, vol. 18(4), pages 109-125, October.
    9. K. Kosmidou & F. Pasiouras & M. Doumpos & C. Zopounidis, 2006. "Assessing performance factors in the UK banking sector: A multicriteria methodology," Central European Journal of Operations Research, Springer, vol. 14(1), pages 25-44, February.
    10. Robert Webb, 2003. "Levels of efficiency in UK retail banks: a DEA window analysis," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 10(3), pages 305-322.
    11. Drake, Leigh & Simper, R., 2003. "The measurement of English and Welsh police force efficiency: A comparison of distance function models," European Journal of Operational Research, Elsevier, vol. 147(1), pages 165-186, May.
    12. Leigh Drake, 2001. "Efficiency and productivity change in UK banking," Applied Financial Economics, Taylor & Francis Journals, vol. 11(5), pages 557-571.
    13. Luc Laeven & Giovanni Majnoni, 2002. "Loan loss provisioning and economic slowdowns: too much too late?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
    14. J.K. Ashton, 2001. "Cost Efficiency Characteristics of British Retail Banks," The Service Industries Journal, Taylor & Francis Journals, vol. 21(2), pages 159-174, April.
    15. Corvoisier, Sandrine & Gropp, Reint, 2001. "Bank Concentration and Retail Interest Rates," Working Paper Series 0072, European Central Bank.
    16. Drake, Leigh & Hall, Maximilian J. B., 2003. "Efficiency in Japanese banking: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 27(5), pages 891-917, May.
    17. Altunbas, Yener & Liu, Ming-Hau & Molyneux, Philip & Seth, Rama, 2000. "Efficiency and risk in Japanese banking," Journal of Banking & Finance, Elsevier, vol. 24(10), pages 1605-1628, October.
    18. Drake, Leigh & Simper, Richard, 2002. "Economies of scale in UK building societies: A re-appraisal using an entry/exit model," Journal of Banking & Finance, Elsevier, vol. 26(12), pages 2365-2382.
    19. Piyu Yue, 1992. "Data envelopment analysis and commercial bank performance: a primer with applications to Missouri banks," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 31-45.
    20. Hartman, Thomas E. & Storbeck, James E., 1996. "Input congestion in loan operations," International Journal of Production Economics, Elsevier, vol. 46(1), pages 413-421, December.
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    Cited by:
    1. Bryce, Cormac & Cheevers, Carly & Webb, Rob, 2013. "Operational risk escalation: An empirical analysis of UK call centres," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 298-307.

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