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The determinants of non-bank financial institution efficiency: a stochastic cost frontier approach

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  • Andrew Worthington

Abstract

A two-stage estimation procedure is employed to evaluate non-bank financial institution efficiency. In the first stage, maximum-likelihood estimates of an econometric cost function are obtained for a cross-section of 150 Australian credit unions. The results indicate that a typical credit union's costs in 1995 were only some 7% above what could be considered efficient. The second stage uses limited dependent variable regression techniques to relate credit union efficiency scores to structural and institutional considerations. The results indicate that non-core commercial activities are not a significant influence on the level of cost inefficiency, although asset size, capital adequacy regulation, and branch and agency networks are significant. A primary influence on credit union efficiency would appear to be the industrial or community associational bond under which they were created, and to a lesser extent the state-based regulatory framework.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/096031098333032
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 8 (1998)
Issue (Month): 3 ()
Pages: 279-287

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Handle: RePEc:taf:apfiec:v:8:y:1998:i:3:p:279-287

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Cited by:
  1. J. Colin Glass & Donal McKillop, 2006. "The impact of differing operating environments on US Credit Union Performance, 1993-2001," Applied Financial Economics, Taylor & Francis Journals, vol. 16(17), pages 1285-1300.
  2. Andrew C. Worthington, 2009. "Frontier Efficiency Measurement in Deposit-taking Financial Mutuals: A Review of Techniques, Application, and Future Research Directions," Discussion Papers in Finance finance:200911, Griffith University, Department of Accounting, Finance and Economics.
  3. Worthington, Andrew C., 1999. "Malmquist indices of productivity change in Australian financial services," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 9(3), pages 303-320, August.
  4. Heejoon Kang & Michele Fratianni, 2006. "International Trade Efficiency, the Gravity Equation, and the Stochastic Frontier," Working Papers 2006-08, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  5. Lamberte, Mario B. & Desrochers, Martin, 2002. "Efficiency and Expense Preference in the Philippines' Cooperative Rural Banks," Discussion Papers DP 2002-12, Philippine Institute for Development Studies.
  6. Gutiérrez-Nieto, Begoña & Serrano-Cinca, Carlos & Mar Molinero, Cecilio, 2007. "Microfinance institutions and efficiency," Omega, Elsevier, vol. 35(2), pages 131-142, April.
  7. KABLAN, Sandrine, 2012. "Microfinance efficiency in the West African Economic and Monetary Union: have reforms promoted sustainability or outreach?," MPRA Paper 39955, University Library of Munich, Germany.
  8. Glass, J. Colin & McKillop, Donal G. & Rasaratnam, Syamarlah, 2010. "Irish credit unions: Investigating performance determinants and the opportunity cost of regulatory compliance," Journal of Banking & Finance, Elsevier, vol. 34(1), pages 67-76, January.

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