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Measuring Bank Profit Efficiency

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Author Info
Fitzpatrick, Trevor (Central Bank and Financial Services Authority of Ireland)
McQuinn, Kieran (Central Bank and Financial Services Authority of Ireland)

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Abstract

This paper proposes that a variant of the Battese and Coelli (1995) inefficiency model can be applied as a consistent and unifying framework in exploring the determinants of credit institutions’ profit inefficiency scores. To date, work concerned with the potential determinants of credit institutions' profit inefficiency levels has addressed the issue in either a single-step or multi-step process. In the former, inefficiency scores are conditioned by region and bank-specific indicators, while in the latter, generated inefficiency scores are subsequently regressed on a set of potential correlates. The approach proposed here allows these issues to be explored jointly in a statistically consistent manner. The model is applied to a sample of banks from Ireland, the UK, Canada and Australia.

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Publisher Info
Paper provided by Central Bank & Financial Services Authority of Ireland (CBFSAI) in its series Research Technical Papers with number 3/RT/05.

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Length: 16 pages
Date of creation: May 2005
Date of revision:
Handle: RePEc:cbi:wpaper:3/rt/05

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Find related papers by JEL classification:
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Maudos, Joaquin & Pastor, Jose M. & Perez, Francisco & Quesada, Javier, 2002. "Cost and profit efficiency in European banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 12(1), pages 33-58, February. [Downloadable!] (restricted)
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  2. Allen N. Berger & Loretta J. Mester, 1997. "Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions?," Center for Financial Institutions Working Papers 97-04, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
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  3. Fitzpatrick, Trevor & McQuinn, Kieran, 2004. "Cost Efficiency in UK and Irish Credit Institutions," Research Technical Papers 3/RT/04, Central Bank & Financial Services Authority of Ireland (CBFSAI). [Downloadable!]
  4. Rahman, Sanzidur, 2003. "Profit efficiency among Bangladeshi rice farmers," Food Policy, Elsevier, vol. 28(5-6), pages 487-503. [Downloadable!] (restricted)
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  5. Altunbas, Y. & Gardener, E. P. M. & Molyneux, P. & Moore, B., 2001. "Efficiency in European banking," European Economic Review, Elsevier, vol. 45(10), pages 1931-1955, December. [Downloadable!] (restricted)
  6. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-32.
  7. Schmalensee, Richard, 1985. "Do Markets Differ Much?," American Economic Review, American Economic Association, vol. 75(3), pages 341-51, June. [Downloadable!] (restricted)
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  8. Clark, Jeffrey A & Siems, Thomas F, 2002. "X-Efficiency in Banking: Looking beyond the Balance Sheet," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(4), pages 987-1013, November.
  9. Amel, Dean & Barnes, Colleen & Panetta, Fabio & Salleo, Carmelo, 2004. "Consolidation and efficiency in the financial sector: A review of the international evidence," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2493-2519, October. [Downloadable!] (restricted)
  10. Sturm, Jan-Egbert & Williams, Barry, 2004. "Foreign bank entry, deregulation and bank efficiency: Lessons from the Australian experience," Journal of Banking & Finance, Elsevier, vol. 28(7), pages 1775-1799, July. [Downloadable!] (restricted)
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  1. Kamaruddin, Badrul Hisham & Safa, Mohammad Samaun & Mohd, Rohani, 2008. "Assessing production efficiency of Islamic banks and conventional bank Islamic windows in Malaysia," MPRA Paper 10670, University Library of Munich, Germany, revised 10 May 2008. [Downloadable!]
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