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Efficiency and productivity of the US banking industry, 1998-2005: evidence from the Fourier cost function satisfying global regularity conditions

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  • Guohua Feng

    (Department of Econometrics and Business Statistics, Monash University, Victoria, Australia)

  • Apostolos Serletis

    (Department of Economics, University of Calgary, Alberta, Canada)

Abstract

This paper provides estimates of bank efficiency and productivity in the United States, over the period from 1998 to 2005, using (for the first time) the globally flexible Fourier cost functional form, as originally proposed by Gallant (1982), and estimated subject to global theoretical regularity conditions, using procedures suggested by Gallant and Golub (1984). We find that failure to incorporate monotonicity and curvature into the estimation results in mismeasured magnitudes of cost efficiency and misleading rankings of individual banks in terms of cost efficiency. We also find that the largest two subgroups (with assets greater than 1 billion in 1998 dollars) are less efficient than the other subgroups and that the largest four bank subgroups (with assets greater than $ 400 million) experienced significant productivity gains and the smallest eight subgroups experienced insignificant productivity gains or even productivity losses. Copyright © 2008 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/jae.1021
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Journal of Applied Econometrics.

Volume (Year): 24 (2009)
Issue (Month): 1 ()
Pages: 105-138

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Handle: RePEc:jae:japmet:v:24:y:2009:i:1:p:105-138

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References

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Cited by:
  1. Feng, Guohua & Serletis, Apostolos, 2010. "Efficiency, technical change, and returns to scale in large US banks: Panel data evidence from an output distance function satisfying theoretical regularity," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 127-138, January.
  2. Feng, Guohua & Zhang, Xiaohui, 2012. "Productivity and efficiency at large and community banks in the US: A Bayesian true random effects stochastic distance frontier analysis," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 1883-1895.
  3. Kumbhakar, Subal C. & Lien, Gudbrand D. & Hardaker, J. Brian, 2011. "Technical efficiency in competing panel data models: A study of Norwegian grain farming," 2011 International Congress, August 30-September 2, 2011, Zurich, Switzerland 114673, European Association of Agricultural Economists.

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