Cost Inefficiency and the Holding of Nontraditional Assets by Solvent Stock Thrifts

Posted: 16 Oct 1998

See all articles by A. Sinan Cebenoyan

A. Sinan Cebenoyan

New York University (NYU) - Department of Finance; Hofstra University - Frank G. Zarb School of Business

Elizabeth S. Cooperman

University of Colorado Denver

Charles A. Register

Florida Atlantic University - Department of Economics

Sylvia C. Hudgins

Old Dominion University

Abstract

In contrast to greater restrictions on thrifts' nontraditional assets under FIRREA, Congress is considering new legislation forcing thrifts to convert to banks. Hence, the efficiency implications of product diversification for thrifts is an important issue. We examine the relation between thrifts' movement into nontraditional assets and the operating inefficiency of adequately capitalized stock thrifts in 1988 and 1994. We estimate inefficiency scores for individual thrifts for each respective year using a stochastic cost frontier methodology. In a second step, we regress these scores against measures for movement into nontraditional assets. We find a significant fall in inefficiency with a rise in holdings of both traditional and nontraditional assets. Our results suggest that greater diversification privileges for thrifts should be beneficial to the health of the industry.

JEL Classification: G21, G28

Suggested Citation

Cebenoyan, Ahmet Sinan and Cooperman, Elizabeth S. and Register, Charles A. and Hudgins, Sylvia C., Cost Inefficiency and the Holding of Nontraditional Assets by Solvent Stock Thrifts. Available at SSRN: https://ssrn.com/abstract=123968

Ahmet Sinan Cebenoyan

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States

Hofstra University - Frank G. Zarb School of Business ( email )

Dept. of Finance
Hempstead, NY 11549
United States
516-463-5702 (Phone)

Elizabeth S. Cooperman

University of Colorado Denver ( email )

Campus Box 165, P.O. Box 173364
Denver, CO 80217
United States
303-315-8422 (Phone)
303-315-8084 (Fax)

Charles A. Register (Contact Author)

Florida Atlantic University - Department of Economics ( email )

5353 Parkside Dr
Jupiter, FL 33458
United States
561-297-3000 Ext 73222 (Phone)

Sylvia C. Hudgins

Old Dominion University ( email )

School of Business and Public Administration
Norfolk, VA 23529-0222
United States

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