Measuring bank profit efficiency

Abstract

To date, work concerned with the potential determinants of credit institutions’ profit inefficiency levels has addressed this issue in either a single-step or multi-step process. In the former, inefficiency scores are conditioned by region and bank-specific indicators, while in the latter, generated inefficiency scores are subsequently regressed on a set of potential correlates. The approach proposed here allows these issues to be explored jointly in a statistically consistent manner. The model is applied to a sample of banks from Ireland, the UK, Canada and Australia.

Efficiency in Islamic and conventional banking: an international comparison

“…With regard to the chosen functional form, most crosscountry studies of banking efficiency have employed a cost function approach (Dietsch and Lozano-Vivas 2000;Abd Karim 2001;Carvallo and Kasman 2005;Fries and Taci 2005;Kasman 2005;Carbo Valverde et al 2007;Maudos and De Guevara 2007), or a profit function approach (Kasman and Yildirim 2006;Fitzpatrick and McQuinn 2008). Moreover, studies have increasingly simultaneously employed both cost and profit functions (Alshammari 2003;Hassan 2003;Al-Jarrah and Molyneux 2005;Bonin et al 2005;Hassan 2005;Kasman and Yildirim 2006;Bos and Schmiedel 2007).…”

“…Thus, some previous SFA cross-country studies (e.g., Maudos et al 2002;Fries and Taci 2005;Williams and Nguyen 2005;Kasman and Yildirim 2006) have either controlled for bank output quality and/or equity in the frontier estimation. Bank output quality 1 (Fries and Taci 2005) or equity capital (Carvallo and Kasman 2005;Bos and Schmiedel 2007;Fitzpatrick and McQuinn 2008) has always before been treated as fully exogenous in the frontier estimation, although some studies have treated equity (Maudos et al 2002;Williams and Nguyen 2005;Kasman and Yildirim 2006) and even both loan quality and equity (Alshammari 2003) as ''netputs''. 2 However, we would argue that even conventional banks employ equity capital as an input in addition to funds from deposits and inter-bank borrowings to finance their operations (Bonaccorsi di Patti and Hardy 2005).…”

“…These include both studies that assume no direct impact of environmental factors on the estimated frontier, and hence assume that they only influence efficiency (Abd Karim 2001;Alshammari 2003;Al-Jarrah and Molyneux 2005) and studies that also control for these factors in estimating the frontier (Bonin et al 2005 Perera et al 2007) have been assumed to directly influence inefficiency. In the later group of studies, which assume that environmental conditions do directly influence frontier estimation, country-specific factors such as governance-related factors (Williams and Nguyen 2005), market concentration (Perera et al 2007) and country dummy variables (Bonin et al 2005;Fitzpatrick and McQuinn 2008) have been controlled for.…”

Efficiency and Risk-Taking in Pre-Crisis Investment Banks

“…Similar adjustments have been used by e.g. Vander Vennet (2002); Casu and Girardone (2004);Fiordelisi (2007); Fitzpatrick and McQuinn (2008). 8 The investigation of the financial crisis' effects on investment banks' efficiency would require a different research methodology and a tailored dataset (therefore we do not include 2008 data in the sample).…”

“…the GDP procapita, as in Salas and Saurina, 2003;CarboValverde et al, 2007;Fitzpatrick and McQuinn, 2008;Brissimis et al, 2008;Fiordelisi and Molyneux, 2010); the density of demand and per capita income (Dietsch and Lozano-Vivas, 2000;Lozano-Vivas et al 2002); the FDI inflows and outflows (Beccalli, 2004); the short-term interest rate, foreign and public ownership ; inflation and cyclical output (Athanasoglou et al, 2008).…”