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A Comparative Analysis of Technical Efficiency and Input Allocation Decisions of Farm Lenders in the Commercial Banking Industry and the Farm Credit System during the Late 2000s Recession

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  • Song, Minrong
  • Li, Xiaofei
  • Escalante, Cesar

Abstract

This paper applies the stochastic Translog input distance function and stochastic frontier analysis (SFA) method to evaluate the operational efficiency of farm lenders in the commercial banking industry and the Farm Credit System (FCS). This paper uses the late 2000s recession as a backdrop for scrutinizing the operating decisions of commercial banks and FCS lending units. The model is applied as a comparative analytical frame work to analyze the operating strategies and efficiencies of commercial banks and FCS lending units. Moreover, under the same efficiency analytical framework, this study investigates the effect of the size of lending operations on the lenders’ efficiency and input allocation decisions. This study also adopts an intertemporal perspective by looking at comparative commercial banks and FCS efficiency before and after the most recent financial crisis. The study’s analyses of changes in both technical efficiency (TE) and allocative efficiency (AE) will help clarify the contributions of different factors to total factor productivity change and, thus help commercial banks and FCS make future operating adjustments to maximize total factor productivity. This analysis may clarify any differences in input allocations and other operating decisions that define small and large lenders’ strategies to survive the tight financial conditions of the late 2000s.

Suggested Citation

  • Song, Minrong & Li, Xiaofei & Escalante, Cesar, 2015. "A Comparative Analysis of Technical Efficiency and Input Allocation Decisions of Farm Lenders in the Commercial Banking Industry and the Farm Credit System during the Late 2000s Recession," 2015 Annual Meeting, January 31-February 3, 2015, Atlanta, Georgia 196696, Southern Agricultural Economics Association.
    • Handle: RePEc:ags:saea15:196696
    DOI: 10.22004/ag.econ.196696
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    Agricultural Finance;

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