Productivity and efficiency at large and community banks in the US: A Bayesian true random effects stochastic distance frontier analysis

G. Feng; X. Zhang

doi:10.1016/j.jbankfin.2012.02.008

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Productivity and efficiency at large and community banks in the US: A Bayesian true random effects stochastic distance frontier analysis

Journal article

Peer reviewed

Productivity and efficiency at large and community banks in the US: A Bayesian true random effects stochastic distance frontier analysis

G. Feng and X. Zhang

Journal of Banking & Finance, Vol.36(7), pp.1883-1895

2012

DOI: https://doi.org/10.1016/j.jbankfin.2012.02.008

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Abstract

Productivity

True random effects stochastic distance frontier

Bayesian estimation

This paper compares the productivity and efficiency of large banks and community banks in the United States over the period 1997–2006. This comparison is performed by estimating a true random effects stochastic distance frontier model—a model that is capable of disentangling unobserved heterogeneity from inefficiency—within a Bayesian framework. We find that failure to consider unobserved heterogeneity results in a misleading ranking of banks and mismeasured technical efficiency, productivity growth, and returns to scale. Our results show that, compared with community banks, large banks have experienced much higher productivity growth and higher levels of returns to scale. Our estimates of total factor productivity growth show a clear downward trend for both large and community banks, and our decomposition of the output-distance-function-based Divisia productivity index indicates that technical change is the driving force behind this trend.

Details

Title: Productivity and efficiency at large and community banks in the US: A Bayesian true random effects stochastic distance frontier analysis
Authors/Creators: G. Feng (Author/Creator)
X. Zhang (Author/Creator)
Publication Details: Journal of Banking & Finance, Vol.36(7), pp.1883-1895
Publisher: Elsevier
Number of pages: 13
Identifiers: 991005543418107891
Copyright: Elsevier
Murdoch Affiliation: Murdoch University
Language: English
Resource Type: Journal article

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Collaboration types: Domestic collaboration; International collaboration
Citation topics: 6 Social Sciences; 6.10 Economics; 6.10.502 Data Envelopment Analysis
Web Of Science research areas: Business, Finance; Economics
ESI research areas: Economics & Business