Evaluating Cost and Profit Efficiency: A Comparison of Parametric and Non-Parametric Methodologies
Posted: 16 Jun 2008 Last revised: 14 Jun 2010
This paper's objective is twofold. First it provides an empirical assessment of the cost and profit stochastic frontiers based on a panel dataset of Greek commercial banks over the 1993-2005 period. Second, on the basis of the same sample, it also compares the most widely used parametric and non-parametric techniques to cost efficiency measurement, namely the Stochastic Frontier Approach and Data Envelopment Analysis. The results suggest greater similarities between the predictions of cost and profit efficiency methods than between parametric and non-parametric techniques. Such evidence is new in the literature and calls for a more technically level playing field for estimating bank efficiency.
Keywords: Bank cost and profit efficiency, Parametric and non-parametric methods
JEL Classification: C14, G21, L25
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