A Novel Mimic-Style Model of European Bank Technical Efficiency and Productivity Growth

36 Pages Posted: 23 May 2020

See all articles by Marwan Izzeldin

Marwan Izzeldin

Lancaster University Management School

E. C. Mamatzakis

Birkbeck College, University of London

Anthony Murphy

Federal Reserve Banks - Federal Reserve Bank of Dallas

Mike Tsionas

Lancaster University

Date Written: May, 2020

Abstract

Using Bayesian Monte Carlo methods, we augment a stochastic distance function measure of bank efficiency and productivity growth with indicators of capitalization, return and risk. Our novel Multiple Indicator-Multiple Cause (MIMIC) style model generates more precise estimates of policy relevant parameters such as returns to scale, technical inefficiency and productivity growth. We find considerable variation in the performance of EU-15 banks over the period 2008 to 2015. For the vast majority of banks, productivity growth – the sum of efficiency and technical changes – is negative, implying that the industry would benefit from innovation. We show that greater technical efficiency is associated with higher profitability, higher capital, a lower probability of default and lower return volatility.

Keywords: Multiple Indicators-Multiple Causes (MIMIC), technical efficiency, productivity growth, EU banks

JEL Classification: C11, C51, D24, G21

Suggested Citation

Izzeldin, Marwan and Mamatzakis, E. C. and Murphy, Anthony and Tsionas, Efthymios G., A Novel Mimic-Style Model of European Bank Technical Efficiency and Productivity Growth (May, 2020). FRB of Dallas Working Paper No. 2012, Available at SSRN: https://ssrn.com/abstract=3607730 or http://dx.doi.org/10.24149/wp2012

Marwan Izzeldin

Lancaster University Management School ( email )

Lancaster, LA1 4YX
United Kingdom
01524 594674 (Phone)

HOME PAGE: http://www.lums.lancs.ac.uk/profiles/marwan-izzeldin/

E. C. Mamatzakis

Birkbeck College, University of London

Malet St,
Bloomsbury,
London, WC1E7HX
United Kingdom

Anthony Murphy (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

Efthymios G. Tsionas

Lancaster University ( email )

Lancaster LA1 4YX
United Kingdom

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