Efficiency and Productivity Growth

Fotios Pasiouras, Department of Production Engineering and Management, Technical University of Crete, Greece.

• Preface xiiiContributors xvii1 Bank efficiency in Latin America 1Philip Molyneux and Jonathan Williams1.1 Introduction 11.2 Privatization and foreign banks in Latin America 21.3 Methodology 41.4 Model specification and data 71.5 Estimated parameters and cost efficiency 101.6 Conclusion 15References 152 A primer on market discipline and governance of financial institutions for those in a state of shocked disbelief 19Joseph P. Hughes and Loretta J. Mester2.1 Introduction 202.2 Assessing the performance of financial institutions 212.3 Market discipline, public regulation, and the federal safety net 242.4 Sources of market discipline 272.4.1 Ownership structure 272.4.2 Capital markets 372.4.3 Product markets 372.4.4 Labor markets 392.4.5 Boards of directors 402.4.6 Compensation 412.5 Conclusions 42Appendix 2.A: Measuring performance based on the highest potential market value of assets 43References 443 Modeling economies of scale in banking: Simple versus complex models 49Robert DeYoung3.1 Introduction 493.2 The increasing size of banks 503.3 What has allowed banks to grow larger? 533.3.1 New banking technologies 533.4 Why do banks choose to be large? 543.4.1 Objectives of bank management 553.4.2 Government subsidies 563.4.3 Scale economies 563.5 Econometric modeling of bank scale economies 573.5.1 Findings from 50 years of studies 583.6 Weaknesses in econometric modeling of bank scale economies 603.6.1 Few and far between 613.6.2 Strategic groups 623.6.3 External costs 683.7 Other evidence on bank scale economies 683.7.1 Survivor analysis 683.7.2 The market price of banks 703.7.3 Bank size and bank risk-return trade-offs 713.8 Conclusions 73References 744 Optimal size in banking: The role of off-balance sheet operations 77Jaap W.B. Bos and James W. Kolari4.1 Literature review 784.2 Off-balance sheet activities of European banks 794.3 Methodology 834.3.1 Stochastic frontier analysis 834.3.2 Functional form 844.3.3 Scale economies 854.4 Data 864.5 Results 864.5.1 Increasing OBS operations 864.5.2 Nonseparability effects of OBS operations 894.6 Conclusion 91References 915 Productivity of foreign banks: Evidence from a financial center 95Claudia Curi and Ana Lozano-Vivas5.1 Introduction 955.2 Literature overview 985.3 Methodology 1005.3.1 TFP growth measures 1005.3.2 Estimation of the TFP growth measures 1025.4 Data and sources 1035.5 Empirical results 1095.5.1 Productivity growth over time 1095.5.2 Breaking down productivity growth 1115.6 Conclusions 116Acknowledgments 118References 1186 The impact of merger and acquisition on efficiency and market power 123Franco Fiordelisi and Francesco Saverio Stentella Lopes6.1 Introduction 1236.2 Literature review 1256.3 Empirical design 1256.3.1 Data 1256.3.2 Variables 1276.3.3 The econometric approach 1296.4 Results 1296.5 Conclusions 131References 1327 Backtesting superfund portfolio strategies based on frontier-based mutual fund ratings 135Olivier Brandouy, Kristiaan Kerstens, and Ignace Van de Woestyne7.1 Introduction 1357.2 Frontier-based mutual funds rating models 1377.2.1 A taxonomy 1377.2.2 MF frontier rating models retained 1427.3 Backtesting setup, data description, and frontier-based portfolio models 1447.3.1 Backtesting setup 1447.3.2 Frontier-based portfolio models 1467.3.3 Data description 1467.4 Empirical analysis 1487.4.1 Descriptive statistics 1487.4.2 Analysis of both hedonic rating models 1487.4.3 Backtesting results for 48 different strategies 1537.4.4 Backtesting results for MF rating models: Some plausible explanations 1597.5 Conclusions 166Acknowledgments 168References 1688 Bank efficiency measurement and network DEA: A discussion of key issues and illustration of recent developments in the field 171Necmi K. Avkiran8.1 Introduction 1718.2 Global financial crisis and the importance of DEA in bank performance analysis 1728.3 The wider contribution of DEA to bank efficiency analysis and potential improvements 1738.4 Principal advantages and disadvantages of DEA 1748.5 DEA versus stochastic frontier analysis 1768.6 Drilling deeper with network DEA in search of inefficiencies 1778.6.1 Definition of ‘Network’ in banking applications of NDEA 1778.6.2 Conceptualizing bank branch production 1798.6.3 Network slacks-based measure of efficiency 1818.6.4 A brief numerical example 1838.6.5 Jackknifing versus bootstrapping 1858.7 Moving forward with DEA 1868.8 Conclusions 187Appendix 8.A: Jackknifing 188References 1899 A dynamic network DEA model with an application to Japanese Shinkin banks 193Hirofumi Fukuyama and William L. Weber9.1 Introduction 1939.2 Literature review of productivity analysis in credit banks in Japan 1949.3 Dynamic network production 1969.3.1 The two-stage technology 1969.3.2 Three-year dynamic DEA 1999.4 Cooperative Shinkin banks: An empirical illustration 2029.4.1 Defining bank inputs and outputs 2029.4.2 NPLs in the efficiency/productivity measurement 2039.4.3 Data 2049.5 Estimates 2059.6 Summary and conclusions 209References 21110 Effects of specification choices on efficiency in DEA and SFA 215Michael Koetter and Aljar Meesters10.1 Introduction 21510.2 Bank benchmarking background 21610.2.1 Theoretical foundations 21610.2.2 Benchmarking techniques 21710.2.3 Specification options 21810.3 Methodologies 22010.3.1 Stochastic frontier analysis 22010.3.2 Data envelopment analysis 22110.4 Data 22110.5 Results 22510.5.1 Efficiency distributions 22510.5.2 Rank correlations 23010.5.3 Extreme performers 23110.5.4 Accounting-based indicators 23210.6 Conclusion 233References 23411 Efficiency and performance evaluation of European cooperative banks 237Michael Doumpos and Constantin Zopounidis11.1 Introduction 23711.2 Methodology 23911.2.1 Data envelopment analysis models 23911.2.2 Multicriteria evaluation 24011.3 Empirical results 24111.3.1 Data and variables 24111.3.2 Efficiency analysis results 24411.3.3 Multicriteria evaluation results 24711.4 Conclusions 251References 25112 A quantile regression approach to bank efficiency measurement 253Anastasia Koutsomanoli-Filippaki, Emmanuel Mamatzakis, and Fotios Pasiouras12.1 Introduction 25312.2 Methodology and data 25412.2.1 Methodology 25412.2.2 Data and specification of the frontier 25612.3 Empirical results 25712.3.1 Cost efficiency estimates 25712.3.2 Determinants of cost efficiency 25912.4 Conclusions 262Appendix 12.A: Information on variables 262References 265Index 267