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Journal Article
Why do estimates of bank scale economies differ?
A number of public policy issues turn on whether or not there are scale economies in commercial banking. This paper examines why empirical tests in this area have yielded differing results. Sorting out the different methodological approaches enables us to develop general conclusions on the size and significance of scale economies in banking.
Journal Article
Assessing the impact of regulation on bank cost efficiency
The author finds that the bank production process was significantly distorted during a period typically associated with heavy industry regulation. As deregulation occurred, banks fully exploited the cost advantages associated with size and reaped significant gains from technological change. Efficiency significantly improved with deregulation.
Journal Article
Store branching: a part in banking's future?
Working Paper
Measuring efficiency when market prices are subject to adverse selection
In perfectly competitive markets, prices aggregate inputs and outputs into a money metric that allows production plans to be ranked by their profitability. When informational asymmetries in competitive markets lead to adverse selection, prices in these markets assume an additional role that conveys information about product quality. In the case of banking production, quality is linked to risk because prices are linked to credit quality. ; The problem of efficiency measurement is complicated by the additional role because quality varies with price and price is a decision variable of firms ...
Conference Paper
An empirical analysis of the costs of regulatory compliance
Working Paper
The informativeness of stochastic frontier and programming frontier efficiency scores: Cost efficiency and other measures of bank holding company performance
This paper examines the properties of the X-inefficiencies in U.S. bank holding companies derived from both stochastic and linear programming frontiers. This examination allows the robustness of results across methods to be compared. While we find that calculated programming inefficiency scores are two to three times larger than those estimated using a stochastic frontier, the patterns of the scores across banks and time are similar, and there is a relatively high correlation of the rankings of banks' efficiencies under the two methods. However, when we examine the "informativeness" of the ...
Working Paper
Who's minding the store? motivating and monitoring hired managers at small, closely held firms: the case of commercial banks
We test whether the gains from hiring an outside manager exceed the principal-agent costs of owner-manager separation at 266 small, closely held U.S. commercial banks. Our results suggest that hiring an outside manager can improve a bank's profit efficiency, but that these gains depend on aligning the hired managers with owners via managerial shareholdings. We find that over-utilizing this control mechanism results in entrenchment, while under-utilization is costly in terms of foregone profits. This study provides a relatively unfettered test of mitigating principal-agent costs, because these ...