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Cost efficiency and technological gap in Western European banks: A stochastic metafrontier analysis

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  • Lee, Chi-Chuan
  • Huang, Tai-Hsin

Abstract

This paper compares the cost efficiencies of banks in Western European countries using a new stochastic metafrontier Fourier flexible cost function for the period 1996–2010. One salient feature of our method is that the TGR can be linked with country-specific environmental variables. Results show that the average TGRs in these countries are close to one another, implying that banks operating in this integrated market undertake analogous technology. Moreover, the TGR and MCE exhibit a gradual upward trend during 1996–2000, followed by a downward trend especially after the subprime crisis of 2007–2010. The managerial inability constitutes the primary source of inefficiencies.

Suggested Citation

  • Lee, Chi-Chuan & Huang, Tai-Hsin, 2017. "Cost efficiency and technological gap in Western European banks: A stochastic metafrontier analysis," International Review of Economics & Finance, Elsevier, vol. 48(C), pages 161-178.
  • Handle: RePEc:eee:reveco:v:48:y:2017:i:c:p:161-178
    DOI: 10.1016/j.iref.2016.12.003
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    More about this item

    Keywords

    Metafrontier; Cost efficiency; Technology gap ratios; Fourier flexible cost function; Environmental variables;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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