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Testing for Expense Preference Behavior: Mutual versus Stock Savings and Loans

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Author Info
Loretta J. Mester

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Abstract

This article investigates expense preference behavior in the savings and loan industry. Previous studies used an intercept test and, in general, concluded that managers of mutual S&Ls exhibit expense preference behavior. I derive the necessary and sufficient conditions on cost functions for the intercept test to be valid. These restrictions are rejected for the savings and loan industry. Stock and mutual S&Ls have different cost structures, and both have non-Cobb-Douglas production technologies. I derive a new, more general test for expense preference behavior that does not require the restrictive assumptions of the intercept test. The results of this test do not support earlier conclusions of managerial expense preferences.

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File URL: http://links.jstor.org/sici?sici=0741-6261%28198924%2920%3A4%3C483%3ATFEPBM%3E2.0.CO%3B2-B&origin=repec
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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 20 (1989)
Issue (Month): 4 (Winter)
Pages: 483-498
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Handle: RePEc:rje:randje:v:20:y:1989:i:winter:p:483-498

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  2. Loretta J. Mester, 2005. "Optimal industrial structure in banking," Working Papers 08-2, Federal Reserve Bank of Philadelphia. [Downloadable!]
  3. J. David Cummins & Sharon Tennyson & Mary A. Weiss, 1998. "Consolidation and Efficiency in the U.S. Life Insurance Industry," Center for Financial Institutions Working Papers 98-08, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
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  4. Jesus, Saurina & Gabriel, Jimenez, 2006. "Credit Cycles, Credit Risk, and Prudential Regulation," MPRA Paper 718, University Library of Munich, Germany. [Downloadable!]
  5. Allen N. Berger & Emilia Bonaccorsi di Patti, 2002. "Capital structure and firm performance: a new approach to testing agency theory and an application to the banking industry," Finance and Economics Discussion Series 2002-54, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
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  6. Manlagnit, Ma. Chelo V. & Lamberte, Mario B., 2004. "Evaluating the Impacts of Competition Policy Reforms on the Efficiency of Philippine Commercial Banks," Discussion Papers DP 2004-46, Philippine Institute for Development Studies. [Downloadable!]
  7. Martin Desrochers & Klaus P. Fischer, 2003. "Theory and Test on the Corporate Governance of Financial Cooperative Systems: Merger vs. Networks," Cahiers de recherche 0334, CIRPEE. [Downloadable!]
  8. J. David Cummins & Hongmin Zi, 1997. "Comparison of Frontier Efficiency Methods: An Application to the U.S. Life Insurance Industry," Center for Financial Institutions Working Papers 97-03, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  9. Neil Murphy & Dan Salandro, 1997. "Form of ownership and risk taking in banking: Some evidence from Massachusetts savings banks," Journal of Economics and Finance, Springer, vol. 21(3), pages 19-28, September. [Downloadable!] (restricted)
  10. Gabriel Jiménez & Jesús Saurina, 2006. "Credit Cycles, Credit Risk, and Prudential Regulation," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May. [Downloadable!]
  11. Joseph P. Hughes & Loretta J. Mester & Choon-Geol Moon, 2000. "Are Scale Economies in Banking Elusive or Illusive?," Departmental Working Papers 200004, Rutgers University, Department of Economics. [Downloadable!]
  12. Allen N. Berger & J. David Cummins & Mary A. Weiss, 1995. "The Coexistence of Multiple Distributions Systems for Financial Services: The Case of Property-Liability Insurance," Center for Financial Institutions Working Papers 95-13, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
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  13. Joseph P. Hughes & Loretta J. Mester & Choon-Geol Moon, 2000. "Are All Scale Economies in Banking Elusive or Illusive: Evidence Obtained by Incorporating Capital Structure and Risk Taking into Models of Bank Production," Center for Financial Institutions Working Papers 00-33, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  14. Glenn D. Westley & Sherrill Shaffer, 1998. "Credit union policies and performance in Latin America," Working Papers 98-1, Federal Reserve Bank of Philadelphia. [Downloadable!]
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  15. Gabriel Asaftei & Subal Kumbhakar, 2008. "Regulation and efficiency in transition: the case of Romanian banks," Journal of Regulatory Economics, Springer, vol. 33(3), pages 253-282, June. [Downloadable!] (restricted)
  16. Joseph P. Hughes & Loretta J. Mester & Choon-Geol Moon, 2000. "Are scale economies in banking elusive or illusive? Evidence obtained by incorporating capital structure and risk-taking into models of bank production," Working Papers 00-4, Federal Reserve Bank of Philadelphia. [Downloadable!]
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  17. Martin Desrochers & Klaus P. Fischer, 2005. "The Power of Networks: Integration and Financial Cooperative Performance," Cahiers de recherche 0514, CIRPEE. [Downloadable!]
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  18. Iftekhar Hasan & Ana Lozano, 1999. "Organizational Form and Expense Preference: Spanish Experience," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-068, New York University, Leonard N. Stern School of Business-. [Downloadable!]
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  19. Bernhard Mahlberg & Thomas Url, . "The Transition to the Single Market in the German Insurance Industry," WIFO Working Papers 131, WIFO. [Downloadable!]
  20. J. David Cummins & Giuseppe Turchetti, 1996. "Productivity and Technical Efficiency in the Italian Insurance Industry," Center for Financial Institutions Working Papers 96-10, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
  21. Loretta J. Mester, 2003. "Applying efficiency measurement techniques to central banks," Working Papers 03-13, Federal Reserve Bank of Philadelphia. [Downloadable!]
  22. Tiffany Hutcheson & Ian Sharpe, 1997. "Ownership Structure and Building Society Efficiency," Working Paper Series 78, School of Finance and Economics, University of Technology, Sydney. [Downloadable!]
  23. Gabriel Jiménez & Jesús Saurina, 2005. "Credit cycles, credit risk, and prudential regulation," Banco de España Working Papers 0531, Banco de España. [Downloadable!]
  24. Kathleen Carey & Avi Dor, 2002. "Does Managerial 'Outsourcing' Reduce Expense Preference Behavior? A Comparison of Adopters and Non-Adopters of Contract-Management in US Hospitals," NBER Working Papers 9157, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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