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Efficiency in the factoring industry

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  • Franco Fiordelisi
  • Philip Molyneux

Abstract

The efficiency and productivity in the Italian factoring industry between 1993 and 1997 is investigated using DEA. The factoring industry is an important part of many financial systems and it has established itself as a major source of finance and credit management for a growing number of companies. However, as far as the authors are aware no studies have applied frontier methodologies to examine the efficiency and productivity of this industry. This paper focuses on the Italian market, the second largest in the world after the UK. The results suggest that there are substantial cost savings to be had in the Italian factoring industry: the mean cost inefficiency in the Italian factoring industry over the period 1993-1997 ranged between 14% and 22%. These inefficiencies are mainly generated by allocative rather than technical inefficiencies. Scale and technical inefficiencies seem to be similar in magnitude and the supposed importance of the latter typically found in the banking efficiency literature, are not observed in Italian factoring. Firm size does not appear to be related to technical, allocative and economic efficiency and the hypothesis that ownership structure influences factoring firm efficiency could not be rejected. In order to analyse efficiency change over time the Malmquist index is used. Total factor productivity was decomposed into technical change and efficiency change and the latter was further divided into pure efficiency and scale efficiency change. Productivity changes were slight over the period 1993-1996, while a substantial increase in productivity occurred between 1996 and 1997: the latter appears to be the result of a large improvement in the technology and a positive scale efficiency change, however, this was slowed down by a negative pure efficiency change.

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Bibliographic Info

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

Volume (Year): 36 (2004)
Issue (Month): 9 ()
Pages: 947-959

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Handle: RePEc:taf:applec:v:36:y:2004:i:9:p:947-959

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  1. Grifell-Tatje, E. & Lovell, C. A. K., 1996. "Deregulation and productivity decline: The case of Spanish bavings banks," European Economic Review, Elsevier, vol. 40(6), pages 1281-1303, June.
  2. R. D. Banker & A. Charnes & W. W. Cooper, 1984. "Some Models for Estimating Technical and Scale Inefficiencies in Data Envelopment Analysis," Management Science, INFORMS, vol. 30(9), pages 1078-1092, September.
  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. Francisco Pérez García & Javier Quesada Ibañez & José Manuel Pastor Monsálvez, 1995. "Efficiency Analysis In Banking Firms: An International Comparison," Working Papers. Serie EC 1995-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
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Cited by:
  1. Carlos Pestana Barros & Stephanie Leach, 2006. "Performance evaluation of the English Premier Football League with data envelopment analysis," Applied Economics, Taylor & Francis Journals, vol. 38(12), pages 1449-1458.
  2. Jose Zofio, 2007. "Malmquist productivity index decompositions: a unifying framework," Applied Economics, Taylor & Francis Journals, vol. 39(18), pages 2371-2387.

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