The Investigation of Heterogeneous Productions Technologies: Implications for the Banking Efficiency

37 Pages Posted: 25 Aug 2011

See all articles by Konstantinos Baltas

Konstantinos Baltas

University of London - Queen Mary College - School of Economics and Finance

George Kapetanios

King's College, London

Date Written: June 1, 2011

Abstract

Surveys of bank efficiency intrinsically draw conclusions based on the assumption that all banks in a sample use the same production technology. Neglecting the existence of unobserved differences in technological regimes might distort efficiency estimates by assigning incorrectly these deviations as inefficiency. We approach these consideration by estimating the unobserved heterogeneity in banking technologies in a latent class stochastic frontier model. We quote an application of the model by using data of the Greek banking sector for the period 1993-2008.Our results reveal that the Greek bank-heterogeneity can be controlled by two technological regimes. In addition, managerial choices influence the technology of Greek banks. Based on the changes of the efficiency scores of the banks we extract inferences with policy implications in the spectrum of social welfare effects.

Keywords: Bank efficiency, stochastic cost frontier, latent class, panel data

JEL Classification: C81, D24, G21

Suggested Citation

Baltas, Konstantinos and Kapetanios, George, The Investigation of Heterogeneous Productions Technologies: Implications for the Banking Efficiency (June 1, 2011). 24th Australasian Finance and Banking Conference 2011 Paper. Available at SSRN: https://ssrn.com/abstract=1916647 or http://dx.doi.org/10.2139/ssrn.1916647

Konstantinos Baltas (Contact Author)

University of London - Queen Mary College - School of Economics and Finance ( email )

Mile End Road
London, London E1 4NS
United Kingdom

George Kapetanios

King's College, London ( email )

30 Aldwych
London, WC2B 4BG
United Kingdom
+44 20 78484951 (Phone)

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