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Cost and profit efficiency in the Spanish banking sector (1985-1996): a non-parametric approach

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  • J. Maudos
  • J. M. Pastor

Abstract

The aim of this article is to analyse the efficiency in costs and in profits of the Spanish banking sector (SBS) in the period 1985-1996 using a non-parametric approach. The results obtained show the existence of profit efficiency levels well below those corresponding to cost efficiency, alternative profit efficiency being below standard profit efficiency. These results imply the existence of market power in the setting of prices and/or the existence of differences in the quality of bank output reflected in the differences in prices. With regard to the immediate future, of full economic and monetary integration, the reduction of profit levels associated with higher competitive pressure may be offset by the reduction of all kinds of inefficiency, which is a very important potential source of competitiveness. Indeed, the results referring to 1996 indicate that the return on assets (ROA) and on equity (ROE) of the SBS could increase by 2.4% and 24.4% respectively, eliminating the combined inefficiency in costs and revenues.

Suggested Citation

  • J. Maudos & J. M. Pastor, 2003. "Cost and profit efficiency in the Spanish banking sector (1985-1996): a non-parametric approach," Applied Financial Economics, Taylor & Francis Journals, vol. 13(1), pages 1-12.
  • Handle: RePEc:taf:apfiec:v:13:y:2003:i:1:p:1-12
    DOI: 10.1080/09603100110086087
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    Cited by:

    1. Stephanie McWhinnie & Kofi Otumawu-Apreku, 2013. "Evaluating Profit Efficiency of the South Australian Rock Lobster Fishery: Nerlovian and Directional Distance Function Approach," School of Economics Working Papers 2013-18, University of Adelaide, School of Economics.
    2. Amaya Altuzarra & Jesús Ferreiro & Catalina Gálvez & Carmen Gómez & Ana González & Patricia Peinado & Carlos Rodríguez & Felipe Serrano, 2013. "Studies in Financial Systems No 6 Report on the Spanish Financial System," FESSUD studies fstudy06, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    3. Matthews, Kent & Ismail, Mahadzir, 2006. "Efficiency and Productivity Growth of Domestic and Foreign Commercial Banks in Malaysia," Cardiff Economics Working Papers E2006/2, Cardiff University, Cardiff Business School, Economics Section.
    4. Drake, Leigh & Hall, Maximilian J.B. & Simper, Richard, 2006. "The impact of macroeconomic and regulatory factors on bank efficiency: A non-parametric analysis of Hong Kong's banking system," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1443-1466, May.
    5. Muhammad, Tanko, 2008. "A DEA Analysis of Bank Performance in Nigeria," MPRA Paper 33560, University Library of Munich, Germany.
    6. Fayyaz Hussain & Abdul Jalil, 2007. "Effectiveness of Foreign Exchange Intervention: Evidence from Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 3, pages 191-208.
    7. Mª Pilar García-Alcober & Emili Tortosa-Ausina & Diego Prior & Manuel Illueca, 2014. "Cost and revenue efficiency in Spanish banking: What distributions show," Working Papers 2014/12, Economics Department, Universitat Jaume I, Castellón (Spain).
    8. Dimitris Chronopoulos & Claudia Girardone & John Nankervis, 2013. "How Do Stock Markets in the US and Europe Price Efficiency Gains from Bank M&As?," Journal of Financial Services Research, Springer;Western Finance Association, vol. 43(3), pages 243-263, June.
    9. Tortosa-Ausina, Emili & Grifell-Tatje, Emili & Armero, Carmen & Conesa, David, 2008. "Sensitivity analysis of efficiency and Malmquist productivity indices: An application to Spanish savings banks," European Journal of Operational Research, Elsevier, vol. 184(3), pages 1062-1084, February.
    10. Isabel-María García-Sánchez, 2010. "The effectiveness of corporate governance: board structure and business technical efficiency in Spain," Central European Journal of Operations Research, Springer;Slovak Society for Operations Research;Hungarian Operational Research Society;Czech Society for Operations Research;Österr. Gesellschaft für Operations Research (ÖGOR);Slovenian Society Informatika - Section for Operational Research;Croatian Operational Research Society, vol. 18(3), pages 311-339, September.
    11. Muhammad Sadiq Ansari, 2006. "An Empirical Investigation of Cost Efficiency in the Banking Sector of Pakistan," SBP Working Paper Series 12, State Bank of Pakistan, Research Department.
    12. Huang, Tai-Hsin & Chiang, Dien-Lin & Lin, Chung-I, 2017. "A new approach to estimating a profit frontier using the censored stochastic frontier model," The North American Journal of Economics and Finance, Elsevier, vol. 39(C), pages 68-77.
    13. Juo, Jia-Ching & Fu, Tsu-Tan & Yu, Ming-Miin, 2012. "Non-oriented slack-based decompositions of profit change with an application to Taiwanese banking," Omega, Elsevier, vol. 40(5), pages 550-561.
    14. Gómez-Gallego, Juan Cándido & Gómez-García, Juan & Pérez-Cárceles, María Concepción, 2012. "Appropriate Distribution of Cost Inefficiency Estimates as Predictor of Financial Instability /La distribución de la ineficiencia estimada como predictor de inestabilidad financiera," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 30, pages 1071(12.)-1, Diciembre.
    15. Garcia-Cestona, Miguel & Surroca, Jordi, 2008. "Multiple goals and ownership structure: Effects on the performance of Spanish savings banks," European Journal of Operational Research, Elsevier, vol. 187(2), pages 582-599, June.
    16. Maria S. Basílio & Maria Clara P. Pires & José Filipe Pires Reis, 2016. "Portuguese banks’ performance: comparing efficiency with their Spanish counterparts," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 6(1), pages 27-44, April.
    17. Gulati, Rachita & Kumar, Sunil, 2016. "Assessing the impact of the global financial crisis on the profit efficiency of Indian banks," Economic Modelling, Elsevier, vol. 58(C), pages 167-181.
    18. Béjaoui Rouissi, Raoudha, 2011. "Cost and profit efficiency of french commercial banks," MPRA Paper 34245, University Library of Munich, Germany.
    19. Stephanie McWhinnie & Kofi Otumawu-Apreku, 2013. "Profit Efficiency of the South Australian Rock Lobster Fishery: Nerlovian and Directional Distance Function Approach," School of Economics Working Papers 2013-13, University of Adelaide, School of Economics.
    20. Serhat Yüksel & Shahriyar Mukhtarov & Elvin Mammadov, 2016. "Comparing the Efficiency of Turkish and Azerbaijani Banks: An Application with Data Envelopment Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 1059-1067.

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