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Bank cost efficiency as distribution dynamics: controlling for specialization is important

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Abstract

This paper analyzes the dynamics of cost efficiency scores in the Spanish banking industry during the 1985—1995 period and the way in which such dynamics are influenced by specialization. Efficiency is estimated by a nonparametric approach, and a model of distribution dynamics has been applied to assess the evolution of efficiency scores over time. Results show that efficiency at the industry level (mean effciency) has increased importantly and that, considering how the entire distribution evolves, there are some important patterns that the mean and the standard deviation fail to uncover, such as multi-modality. In addition, more light is shed on efficiency dynamics when each firm’s output mix is controlled for, as efficiency scores tend to become closer much faster.

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File URL: ftp://ftp.fundacionsepi.es/InvEcon/paperArchive/January2003/v27i1a3.pdf
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Bibliographic Info

Article provided by Fundación SEPI in its journal Investigaciones Economicas.

Volume (Year): 27 (2003)
Issue (Month): 1 (January)
Pages: 71-96

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Handle: RePEc:iec:inveco:v:27:y:2003:i:1:p:71-96

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Postal: Investigaciones Economicas Fundación SEPI Quintana, 2 (planta 3) 28008 Madrid Spain
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Keywords: Banking; distribution dynamics; efficiency; product mix;

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References

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  1. Danny Quah, 1992. "Empirical Cross-Section Dynamics in Economic Growth," FMG Discussion Papers dp154, Financial Markets Group.
  2. Joaquin Maudos, 1998. "Market structure and performance in Spanish banking using a direct measure of efficiency," Applied Financial Economics, Taylor & Francis Journals, vol. 8(2), pages 191-200.
  3. Grifell-Tatje, E. & Lovell, C. A. K., 1997. "The sources of productivity change in Spanish banking," European Journal of Operational Research, Elsevier, vol. 98(2), pages 364-380, April.
  4. Durlauf,S.N. & Quah,D.T., 1998. "The new empirics of economic growth," Working papers 3, Wisconsin Madison - Social Systems.
  5. Francisco Pérez García & Emili Tortosa Ausina, 1998. "Product Mix Of The Spanish Banking Firms: Do Competition Clubs Exist?," Working Papers. Serie EC 1998-02, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  6. Resti, Andrea, 1997. "Evaluating the cost-efficiency of the Italian Banking System: What can be learned from the joint application of parametric and non-parametric techniques," Journal of Banking & Finance, Elsevier, vol. 21(2), pages 221-250, February.
  7. Quah, Danny, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," CEPR Discussion Papers 1355, C.E.P.R. Discussion Papers.
  8. José Manuel Pastor Monsálvez, 1995. "Eficiencia, Cambio Productivo Y Cambio Técnico En Los Bancos Y Cajas De Ahorro Españolas: Un Análisis Frontera No Paramétrico," Working Papers. Serie EC 1995-09, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  9. Ferrier, Gary D. & Lovell, C. A. Knox, 1990. "Measuring cost efficiency in banking : Econometric and linear programming evidence," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 229-245.
  10. R Koopmans & A Lamo, 1995. "Cross-Sectional Firm Dynamics: Theory and Empirical Results from the Chemical Sector," CEP Discussion Papers dp0229, Centre for Economic Performance, LSE.
  11. Emili Tortosa Ausina, 1999. "-Convergence In Efficiency Of The Spanish Banking Firms As Distribution Dynamics," Working Papers. Serie EC 1999-14, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  12. Quah, Danny, 1996. "Regional Convergence Clusters Across Europe," CEPR Discussion Papers 1286, C.E.P.R. Discussion Papers.
  13. J Andres & A Lamo, 1995. "Dynamics of the Income Distribution across OECD Countries," CEP Discussion Papers dp0252, Centre for Economic Performance, LSE.
  14. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August.
  15. PARK, Byeong & TURLACH, Berwin, 1992. "Practical performance of several data driven bandwidth selectors," CORE Discussion Papers 1992005, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. Joaquín Maudos, 1996. "Eficiencia, cambio técnico y productividad en el sector bancario español: una aproximación de frontera estocástica," Investigaciones Economicas, Fundación SEPI, vol. 20(3), pages 339-358, September.
  17. Danny Quah, 1996. "Twin Peaks: Growth and Convergence in Models of Distribution Dynamics," CEP Discussion Papers dp0280, Centre for Economic Performance, LSE.
  18. Quah, Danny, 1993. " Galton's Fallacy and Tests of the Convergence Hypothesis," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 427-43, December.
  19. Cao, Ricardo & Cuevas, Antonio & Gonzalez Manteiga, Wensceslao, 1994. "A comparative study of several smoothing methods in density estimation," Computational Statistics & Data Analysis, Elsevier, vol. 17(2), pages 153-176, February.
  20. Quah, Danny, 1997. "Empirics for Growth and Distribution: Stratification, Polarization, and Convergence Clubs," CEPR Discussion Papers 1586, C.E.P.R. Discussion Papers.
  21. Vivas, Ana Lozano, 1997. "Profit efficiency for Spanish savings banks," European Journal of Operational Research, Elsevier, vol. 98(2), pages 381-394, April.
  22. Rafael Domenech Vilariño, 1993. "Funciones de costes para la banca española: un análisis con datos de panel," Investigaciones Economicas, Fundación SEPI, vol. 17(2), pages 263-284, May.
  23. Amel, Dean F & Rhoades, Stephen A, 1988. "Strategic Groups in Banking," The Review of Economics and Statistics, MIT Press, vol. 70(4), pages 685-89, November.
  24. repec:fth:louvco:9205 is not listed on IDEAS
  25. Quah, Danny T., 1996. "Regional convergence clusters across Europe," European Economic Review, Elsevier, vol. 40(3-5), pages 951-958, April.
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Citations

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Cited by:
  1. Fadzlan SUFIAN, 2009. "Analysis Of The Relevance Of Non-Traditional Activities Items Upon The Efficiency Of Chinese Banks: A Non-Stochastic Frontier DEA Approach," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 4, pages 83-102, November.
  2. Jose Pastor & Lorenzo Serrano, 2006. "The Effect of Specialisation on Banks' Efficiency: An International Comparison," International Review of Applied Economics, Taylor & Francis Journals, vol. 20(1), pages 125-149.

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