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Bank Efficiency in Transitional Countries: Sensitivity to Stochastic Frontier Design

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  • Zuzana Irsova

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Abstract

This article provides an empirical insight on the heterogeneity in the estimates of banking efficiency produced by the stochastic frontier ap- proach. Using data from five countries of Central and Eastern Europe, we study the sensitivity of the efficiency score and the efficiency ranking to a change in the design of the frontier. We found that the average scores are significantly smaller when the transcendental logarithmic functional form is used in the profit efficiency measurement and when the scaling effect is neglected in the cost efficiency measurement. The implied bank ranking is robust to changes in the stochastic frontier definition for cost efficiency, but not for profit efficiency.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp998.

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Length: pages
Date of creation: 01 Sep 2010
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Handle: RePEc:wdi:papers:2010-998

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Keywords: Banking; Eciency Analysis; Stochastic Frontier Approach; Transitional Countries;

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  1. 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, Wharton School Center for Financial Institutions, University of Pennsylvania 97-04, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Hasan, Iftekhar & Marton, Katherin, 2000. "Development and Efficiency of the Banking Sector in a Transitional Economy: Hungarian Experience," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 7/2000, Bank of Finland, Institute for Economies in Transition.
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  6. Allen N. Berger & Robert DeYoung, 1997. "Problem loans and cost efficiency in commercial banks," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 1997-8, Board of Governors of the Federal Reserve System (U.S.).
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  14. Mamatzakis, Emmanuel & Staikouras, Christos & Koutsomanoli-Filippaki, Anastasia, 2008. "Bank efficiency in the new European Union member states: Is there convergence?," International Review of Financial Analysis, Elsevier, Elsevier, vol. 17(5), pages 1156-1172, December.
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Cited by:
  1. Kamil Galuscak & Adam Gersl & Marcela Gronychova & Petr Hlavac & Petr Jakubik & Lubos Komarek & Zlatuse Komarkova & Tomas Konecny & Jakub Seidler, 2014. "Stress-Testing Analyses of the Czech Financial System," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, Czech National Bank, Research Department, edition 1, volume 12, number rb12/1 edited by Jan Babecky & Roman Horvath, August.
  2. Jaromir Baxa & Michal Franta & Tomas Havranek & Roman Horvath & Miroslav Plasil & Marek Rusnak & Borek Vasicek, 2013. "Transmission of Monetary Policy," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, Czech National Bank, Research Department, edition 1, volume 11, number rb11/1 edited by Jan Babecky & Roman Horvath, August.
  3. Jose Peydro Alcalde & Sona Benecka & Alexis Derviz & Adam Gersl & Tomas Holub & Roman Horvath & Petr Jakubik & Narcisa Liliana Kadlcakova & Dorota Kowalczyk & Ivana Kubicova & Steven Ongena & Jakub Ry, 2012. "Financial Stability and Monetary Policy," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, Czech National Bank, Research Department, edition 2, volume 10, number rb10/2 edited by Jan Babecky & Roman Horvath, August.
  4. Tomas Havranek & Zuzana Irsova, 2013. "Determinants of Bank Performance in Transition Countries: A Data Envelopment Analysis," Transition Studies Review, Springer, Springer, vol. 20(1), pages 1-17, April.
  5. Robert Ambrisko & Vitezslav Augusta & Jan Babecky & Michal Franta & Dana Hajkova & Petr Kral & Jan Libich & Pavla Netusilova & Milan Rikovsky & Jakub Rysanek & Pavel Soukup & Petr Stehlik & Vilem Vale, 2013. "Macroeconomic Effects of Fiscal Policy," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, Czech National Bank, Research Department, edition 2, volume 11, number rb11/2 edited by Jan Babecky & Kamil Galuscak, August.

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