Opening the black box: Finding the source of cost inefficiency |
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| Authors: | Santiago Carbó Valverde David B. Humphrey Rafael López del Paso |
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| Affiliation: | (1) Departamento de Teoría e Historia Económica, Universidad de Granada, Granada, Spain;(2) Department of Finance, Florida State University, Tallahassee, FL, USA |
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| Abstract: | ![]()
Parametric and nonparametric procedures are used to identify the apparent source of cost inefficiency in banking. Inefficiencies of 20–25% from earlier studies are reduced to 1–5% when, in addition to commonly specified cost function influences, variables reflecting banks’ external business environment and industry indicators of “productivity” are added. These productivity indicators explain most of the reduction in bank operating cost over 1992–2001 and was 5 times the reduction in the dispersion of inefficiency. Inefficiency appears stable over time because it is small relative to industry-wide cost changes occurring concurrently and because technology dispersion is imperfect. |
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| Keywords: | Cost efficiency Banks |
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