Journal Article

An analysis of inefficiencies in banking: a stochastic cost frontier approach


Abstract: This paper examines the properties of X-inefficiency and the relations of X-inefficiency with risk-taking and stock returns for U.S. banking firms. After controlling for scale differences, the average small size banking firm is found to be relatively less efficient than the average large firm. Small firms also exhibit higher variations in X-inefficiencies than their larger counterparts. While the average X-inefficiency appears to be declining over time, the rank orderings of X-inefficiency are found to be quite persistent. Furthermore, less efficient banking firms are found to be associated with higher risk-taking, and firm-specific X-inefficiencies are significantly correlated with individual stock returns for smaller banking firms.

Keywords: Risk; Banks and banking - Costs;

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File(s): File format is application/pdf http://www.frbsf.org/econrsrch/econrev/96-2/kwan.pdf

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Bibliographic Information

Provider: Federal Reserve Bank of San Francisco

Part of Series: Economic Review

Publication Date: 1996

Pages: 16-26

Order Number: 2