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A geographically weighted approach to measuring efficiency in panel data: The case of US saving banks

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  • Tabak, Benjamin M.
  • Miranda, Rogério Boueri
  • Fazio, Dimas M.

Abstract

This paper discusses a new approach to controlling for the environment when estimating efficiency. In response to the literature on the international comparison of bank efficiency, we draw the attention to a local dimension of comparison. By introducing geographical weights and estimating local frontiers for each US savings bank in the 2001–09 period, we find that the bank technical performance is higher for most banks in comparison to a fixed-effects approach. This result highlights the importance of taking into account the local environment and constraints while analyzing banks’ performance, so as not to consider the factors that are exogenous to these institutions as inefficiencies. Further analysis could improve the weighs calculation by employing other measures of interconnectedness besides geographical distance.

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  • Tabak, Benjamin M. & Miranda, Rogério Boueri & Fazio, Dimas M., 2013. "A geographically weighted approach to measuring efficiency in panel data: The case of US saving banks," Journal of Banking & Finance, Elsevier, vol. 37(10), pages 3747-3756.
  • Handle: RePEc:eee:jbfina:v:37:y:2013:i:10:p:3747-3756
    DOI: 10.1016/j.jbankfin.2013.05.022
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    5. Waldyr Areosa & Marta Areosa, 2012. "Information (in) Chains: information transmission through production chains," Working Papers Series 286, Central Bank of Brazil, Research Department.
    6. Francesco Aiello & Graziella Bonanno, 2018. "Multilevel empirics for small banks in local markets," Papers in Regional Science, Wiley Blackwell, vol. 97(4), pages 1017-1037, November.
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    8. Abreu, Emmanuel Sousa de & Kimura, Herbert & Sobreiro, Vinicius Amorim, 2019. "What is going on with studies on banking efficiency?," Research in International Business and Finance, Elsevier, vol. 47(C), pages 195-219.
    9. Angelo Marsiglia Fasolo, 2012. "A Note on Particle Filters Applied to DSGE Models," Working Papers Series 281, Central Bank of Brazil, Research Department.
    10. Bruno Martins, 2012. "Local Market Structure and Bank Competition: evidence from the Brazilian auto loan market," Working Papers Series 299, Central Bank of Brazil, Research Department.
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    13. Xiaoping Zhou & Zhenyang Qin & Yingjie Zhang & Linyi Zhao & Yan Song, 2019. "Quantitative Estimation and Spatiotemporal Characteristic Analysis of Price Deviation in China's Housing Market," Sustainability, MDPI, Open Access Journal, vol. 11(24), pages 1-28, December.
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    More about this item

    Keywords

    Stochastic frontier; Environmental variables; Bank performance; Geographical weights;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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