A semiparametric stochastic input distance frontier model with application to the Indonesian banking industry

This paper proposes a semiparametric smooth-varying coefficient input distance frontier model with multiple outputs and multiple inputs, panel data, and determinants of technical inefficiency for the Indonesian banking industry during the period 2000 to 2015. The technology parameters are unknown functions of a set of environmental factors that shift the input distance frontier non-neutrally. The computationally simple constraint weighted bootstrapping method is employed to impose the regularity constraints on the distance function. As a by-product, total factor productivity (TFP) growth is estimated and decomposed into technical change, scale component, and efficiency change. The distance elasticities, marginal effects of the environmental factors on the distance elasticities, temporal behavior of technical efficiency, and also TFP growth and its components are investigated.

     

银行业改革、赶超与开放——基于Malmquist TFP指数的实证分析

为评估近年来中国国有银行改革、城市商业银行赶超与银行业对外全面开放5年来外资银行效率的变化,主要采取"中介法",利用2005～2010年数据对中国本土和外资银行Malmquist TFP指数及其组成部分进行了测算分解和实证分析。研究表明:改革促进了中国银行业效率的提高;城市商业银行的"赶超"战略显著提升了效率;中国本土银行的纯技术效率亟待改善;中国银行业对外全面开放后,外资银行的全要素生产率有所提高,但规模效率和技术进步有待改进;股权/资产比率等因素降低了银行效率。     

The dynamics of efficiency and productivity growth in U.S. electric utilities

This study recognizes explicitly the efficiency gain or loss as a source in explaining the growth. A theoretically consistent method to estimate the decomposition of dynamic total factor productivity growth (TFP) in the presence of inefficiency is developed which is constructed from an extension of the dynamic TFP growth, adjusted for deviations from the long-run equilibrium within an adjustment-cost framework. The empirical case study is to U.S. electric utilities, which provides a measure to evaluate how different electric utilities participate in the deregulation of electricity generation. TFP grew by 2.26% per annum with growth attributed to the combined scale effects of 0.34%, the combined efficiency effects of 0.69%, and the technical change effect of 1.22%. The dynamic TFP grew by 1.66% per annum for electric utilities located within states with the deregulation plan and 3.30% per annum for those located outside. Electric utilities located within states with the deregulation plan increased the outputs by improving technical and input allocative efficiencies more than those located outside of states with deregulation plans.

Environmental regulation,total factor productivity,and enterprise duration: Evidence from China

Environmental regulation has been confirmed to have an important impact on enterprise productivity, which is regarded as a crucial factor of enterprise duration. However, existing studies have paid little attention to how environmental regulation affects enterprise duration. Using firm‐level data from the Chinese Industrial Enterprises Database (2003–2007) and the stochastic frontier analysis method, we estimate enterprise total factor productivity (TFP) and its four decomposed components (scale efficiency change, technological change, factor allocation efficiency change, and technical efficiency change). Meanwhile, we adopt a comprehensive index to measure the environmental regulation intensity. Furthermore, we use the linear probability model and the proportional hazards model to investigate the effect of environmental regulation on enterprise duration through the mediating role of enterprise TFP. The results show that although environmental regulation per se negatively impacts on enterprise duration, environmental regulation can present a synthetic positive effect on enterprise duration due to its positive effect on enterprise TFP. Specifically, environmental regulation significantly mitigates the scale efficiency and technical efficiency of regulated enterprises. It also stimulates regulated enterprises' technological innovation and improves their factor allocation efficiency. In addition, state‐owned and large‐scale enterprises are more malleable when facing environmental regulations. We propose that the government should encourage enterprises to innovate and improve the allocation efficiency of production factors, so as to achieve the purpose of controlling environmental pollution in stages while extending enterprise duration.     

资本体现式技术进步、技术合意结构和我国生产率增长来源

本文基于动态前沿生产面的非参数方法获取分行业全要素生产率指数,依据资本体现式技术进步发展耦合于蕴涵前沿技术的机器设备投资过程逻辑,以分行业固定资产投资中的设备工器具投资表征资本体现式技术进步,通过面板数据回归检验不同类型技术进步及其匹配结构对我国制造业生产率的影响。结果显示:资本体现式技术进步是生产率增长的重要来源,但技术效率实现与否内嵌于经济环境,受制于行业利润率及技术与人力资本的匹配程度。行业整体合意技术结构效应不明显,而以利润率和国有化程度分组发现,高国有化行业和高利润率行业存在合意技术结构。     

Econometric estimation of distance functions and associated measures of productivity and efficiency change

Multi-input multi-output production technologies can be represented using distance functions. Econometric estimation of these functions typically involves factoring out one of the outputs or inputs and estimating the resulting equation using maximum likelihood methods. A problem with this approach is that the outputs or inputs that are not factored out may be correlated with the composite error term. Fernandez et al. (J Econ 98:47–79, 2000) show how to solve this so-called ‘endogeneity problem’ using Bayesian methods. In this paper I use the approach to estimate an output distance function and an associated index of total factor productivity (TFP) change. The TFP index is a new index that satisfies most, if not all, economically-relevant axioms from index number theory. It can also be exhaustively decomposed into a measure of technical change and various measures of efficiency change. I illustrate the methodology using state-level data on U.S. agricultural input and output quantities (no prices are needed). Results are summarized in terms of the characteristics (e.g., means) of estimated probability density functions for measures of TFP change, technical change and efficiency change.     

Developing foreign bank efficiency models for DEA grounded in finance theory

We develop foreign bank technical, cost and profit efficiency models for particular application with data envelopment analysis (DEA). Key motivations for the paper are (a) the often-observed practice of choosing inputs and outputs where the selection process is poorly explained and linkages to theory are unclear, and (b) foreign bank productivity analysis, which has been neglected in DEA banking literature. The main aim is to demonstrate a process grounded in finance and banking theories for developing bank efficiency models, which can bring comparability and direction to empirical productivity studies. We expect this paper to foster empirical bank productivity studies.     

Environmental externalities and regulation constrained cost productivity growth in the US electric utility industry

This paper examines whether having to comply with Phase 1 of Title IV of the 1990 Clean Air Act, and rate of return regulation, each impacted the rate of total factor productivity (TFP) growth when accounting for the production of good and bad outputs. Phase 1, effective from 1995 to 1999, requires electric utilities to reduce their emissions of sulfur dioxide and nitrogen oxide (bad outputs). Actions undertaken to reduce the emissions (using less sulfur content coal, installing equipment), may have led to higher production costs, and impacted the rate of TFP growth. Rate regulation may impact how the firm produces its selected output level, which could lead to higher cost over time, and biased estimates of TFP growth. Following the work of Ball et al. (Struct Change Econ Dyn 16(3): 374–394, 2005), who developed the standard Malmquist cost productivity (MCP) index, we develop a MCP index for a rate regulated firm (RMCP index) then use the standard and regulated indices to determine whether having to comply with Phase 1 impacted TFP growth. Empirical results indicate that (i) the RMCP index underestimated the rate at which TFP growth occurred, (ii) Phase 1 utilities on average experienced positive TFP growth from 1996 to 2000 (Phase 1 firms experienced higher TFP growth rates than the rates experienced by firms not subject to Phase 1), and operated more allocatively inefficient in complying with the Phase 1 restrictions. Complying with Phase 1 did not affect the rate at which technical change occurred or the rates of change in scale efficiency.     

Efficiency in Islamic and conventional banking: an international comparison

The paper investigates the efficiency of a sample of Islamic and conventional banks in 10 countries that operate Islamic banking for the period 1996–2002, using an output distance function approach. We obtain measures of efficiency after allowing for environmental influences such as country macroeconomic conditions, accessibility of banking services and bank type. While these factors are assumed to directly influence the shape of the technology, we assume that country dummies and bank size directly influence technical inefficiency. The parameter estimates highlight that during the sample period, Islamic banking appears to be associated with higher input usage. Furthermore, by allowing for bank size and international differences in the underlying inefficiency distributions, we are also able to demonstrate statistically significant differences in inefficiency related to these factors even after controlling for specific environmental characteristics and Islamic banking. Thus, for example, our results suggest that Sudan and Yemen have relatively higher inefficiency while Bahrain and Bangladesh have lower estimated inefficiency. Except for Sudan, where banks exhibits relatively strong returns to scale, most sample banks exhibit very slight returns to scale, although Islamic banks are found to have moderately higher returns to scale than conventional banks. While this suggests that Islamic banks may benefit from increased scale, we would emphasize that our results suggest that identifying and overcoming the factors that cause Islamic banks to have relatively low potential outputs for given input usage levels will be the key challenge for Islamic banking in the coming decades.     

The productivity and performance of Australia’s major banks since deregulation

The aim of this study is to present some measures of the performance of banks operating in Australia since the deregulation of the Australian financial system in early 1980s; including the periods of financial market instability (the early 1990s and mid to late 2000s). In undertaking this measurement two approaches will be used. The first simply applies standard financial indicators. The second approach applies data envelopment analysis (DEA), to determine Malmquist indices of the levels of and the changes in the efficiency and productivity of Australian banks. The empirical results demonstrate the effect of deregulation and periodic financial crisis’s on the performance of individual banks, and the major part of the Australian banking sector. Overall the productivity performance of the Australian banks tended to improve considerably in those periods of strongest economic growth (i.e. the mid 1980s and 2000s).     

Profit, productivity and distribution: Differences across organizational forms - The case of Spanish banks

We examine variations in financial and economic performance as a function of organizational form, and, over time. The forms we consider include Spanish commercial banks, savings banks, and financial cooperatives. We decompose multilateral variation in operating profit, our measure of financial performance, into price and quantity effects. We then decompose the latter into a margin effect and productivity change. Our measure of economic performance, productivity variation, is subsequently disaggregated into technical, cost efficiency, and scale. We find that deregulation and liberalization have acted to narrow performance gaps among organizational forms; this, despite less-than compelling evidence that increased competition has contributed to this convergence. For the Spanish banking system as a whole, the margin effect appears to deliver twice as much financial benefit as do improvements in productivity. Importantly, this finding does not vary across organizational form. Such regularity has an important implication: Incentives for growth are apparently provided by a positive margin rather than by the more elusive benefits of economies of scale and improved cost efficiency.     

A cross-country comparison of productivity growth using the generalised metafrontier Malmquist productivity index: with application to banking industries in Taiwan and China

This paper is an extension of the metafrontier Malmquist productivity index, which takes into account the effect of scale efficiency change in its decomposition for both the non-parametric and parametric frameworks. Meanwhile, the ‘catch-up’ in the index is also disintegrated as two components: pure technological catch-up and frontier catch-up. An empirical application that uses unbalanced panel data of the Taiwanese and Chinese commercial banking industry is also conducted under a parametric framework. The results reveal that the adverse scale efficiency change is the key factor to inducing the inferior productivity growth seen in Chinese banks compared with Taiwanese banks, which spotlights the importance of the scale efficiency change term on productivity measures. It also provides one possible explanation for the recent hot issue about the motives for the two shores of the Taiwan Straits advancing financial openness to each other and mutually signing a banking Memorandum of Understanding.     

BANKING SECTOR PERFORMANCE,PROFITABILITY, AND EFFICIENCY: A CITATION-BASED SYSTEMATIC LITERATURE REVIEW

This study presents a citation-based systematic literature review on banking sector performance, particularly in terms of profitability, productivity, and efficiency. Specifically, the study aims to identify the leading sources of knowledge in terms of the most influential journals, authors, and papers. The paper presents a content analysis of the 100 most cited papers. In total, 1996 peer-review papers were found relevant in the Scopus database by using a comprehensive list of keywords. The results show that the Journal of Banking & Finance appears to be the leading journal in terms of publication count and citations. Based on total citations, Allen Berger is the most prolific author. The most cited paper is “Problem loans and cost efficiency in commercial banks” by Allan Berger and Robert DeYoung. The content analysis of the top 100 papers identifies five essential themes: determinants of efficiency, methodology, ownership, financial crises, and scale economies. In terms of estimation approaches, 74% of papers employed frontier analysis, which includes 34% parametric and 40% nonparametric methods, and remaining 26% have used financial ratio analysis. Additionally, stochastic frontier and data envelopment analysis are widely used in parametric and nonparametric methods, respectively. An intermediate approach is extensively adopted for the specification of inputs and outputs.     

Productivity change in a multisectoral economic system

We estimate productivity growth without recourse to data on factor input shares or prices. In the proposed model, the economy is represented by the Leontief input–output model, which is extended by the constraints of primary inputs. A Luenberger productivity indicator is proposed to estimate productivity change; this is then decomposed in a way that enables us to examine the contributions of individual production factors and individual commodities to productivity change. The results allow for the identification of inputs or outputs that are the drivers of the overall productivity change. Their contributions are then decomposed into efficiency change and technical change components. Using input–output tables of the US economy for the period 1977–2006, we show that technical progress has been the main source of productivity change. Technical progress was mostly driven by capital, whereas low-skilled labour contributed negatively.     

Inefficiency and heterogeneity in Turkish banking: 1990–2000

Recent studies have stressed the importance of privatization and openness to foreign competition for bank efficiency and economic growth. We study bank efficiency in Turkey, an emerging economy with great heterogeneity in bank types and ownership structures. Earlier studies of Turkish banking had three limitations: (i) excessive reliance on cost‐function frontier analyses, wherein volume of loans is a measure of banking output; (ii) pooling all banks or imposing ad hoc heterogeneity assumptions; and (iii) lack of a comprehensive panel data set for proper analysis of productivity and heterogeneity. We use an estimation–classification procedure to find likelihood‐driven classification of bank technologies in an 11‐year panel. In addition, we augment traditional cost‐frontier analysis with a labour‐efficiency analysis. We conclude that state banks are not particularly inefficient overall, but that they do utilize labour inefficiently. This partially supports recent calls for privatization. We also conclude that special finance houses (or Islamic banks) utilize the same technology as conventional domestic banks, and do so relatively efficiently. This suggests that they do not cause harm to the financial system. Finally, we conclude that foreign banks utilize a different technology from domestic ones. This suggests that one should not overstate their value to the financial sector. Copyright © 2005 John Wiley & Sons, Ltd.     

中国农业生产率的变动与分解分析:1978～2004年--基于非参数的HMB生产率指数的实证研究

本文使用非参数的HMB生产率指数方法，考察了中国农村改革以来农业全要素生产率（TFP）的变动趋势，并把TFP的增长构成分解为技术进步、技术效率变化、规模效应和投入产出混合效应四个部分。结果表明，改革开放以来我国农业TFP的增长主要是由技术进步推动的，技术效率的下降对TFP的增长造成了不利影响，而规模效应和混合效应影响较弱。文章还指出中国农业的育种能力和生物技术的发展是农业技术进步的决定力量。     

On bank privatization: The case of Egypt

This paper discusses the controversy regarding the privatization of the banking sector in Egypt. It provides an overview of the structure and evolution of the banking system, in the context of the series of reform measures undertaken by the Egyptian authorities over the past decades. The paper assesses the performance of the state-owned banks versus private banks over the period 1995–2005. Microprudential indicators, such as capital adequacy, asset quality, earnings, and profitability, reveal that state-owned banks lag behind in terms of efficiency and performance, compared to their private counterparts. Results also suggest that retaining government ownership can adversely affect banks performance. The paper explores the factors hindering the smooth implementation of bank privatization. The authors indicate that the financial sector reform currently adopted is comprehensive; however it is confronted with various political, social, and economic risks, which raise concerns regarding its sustainability. The paper then draws on the existing literature to provide guidance to policy makers, regarding effective and successful implementation of bank privatization.     

Technology capital: the price of admission to the growth club

We assess long-run patterns of global agricultural productivity growth between 1970 and 2005 and examine the relationship between investments in technology capital and productivity. To measure agricultural total factor productivity (TFP) we employ a Solow-type growth accounting method to decompose output growth into input and TFP growth. For technology capital we construct two indexes reflecting national capacities in agricultural research and education-extension for 87 developing countries. We then correlate technology capital levels with long-term growth rates in agricultural TFP. Our findings show that global agricultural TFP growth as a whole accelerated since 1980, although performance was very uneven across developing countries. TFP growth rates were significantly influenced by technology capital. Marginal improvements to research capacity, given a minimal level of extension and schooling existed, were associated with faster TFP growth. However, marginal increases in extension-schooling without commensurate improvements in research capacity did not improve productivity performance.     

Canadian Input–Output-based Multi-factor Productivity Accounts

Statistics Canada's multi-factor productivity accounts are integrated into the Canadian system of national accounts. The company's originality rests, in part, on the application of the standard productivity formula to alternative but related sets of outputs and inputs in a bottom-up approach that covers the whole business sector. The concept of vertical integration plays a central role in establishing relationships between alternative indices, including the relationships between static and dynamic indices. In the static framework, the stock of capital is exogenous. In the dynamic framework, capital goods become endogenous produced inputs. Establishments are seen as exchanging capital services across time periods. Time becomes a primary input of production, the productivity of which is associated with technical knowledge. A new measure of capital services and an extended definition of economic efficiency are finally introduced, which solve some paradoxical results that are obtained with the conentional measure.     

The Effect of Financial Liberalization on the Efficiency of Financial Institutions: The Case of Jordanian Commercial Banks

SUMMARY

Jordan undertook major financial sector liberalization starting in the early of 1990s. The effect of this reform on the efficiency of the banking sector is evaluated. A non-parametric method of Data Development Analysis (DEA) has been used to arrive at the efficiency scores for a panel data sample covering eight Jordanian commercial banks over the period 1984 to 2001. The findings suggest that liberalization program was followed by an observable increase in efficiency. Another finding of the study is that large banks demonstrated the faster productivity growth during the liberalization. The study has important implications such as guiding the government policy regarding deregulation and liberalization.