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    Adjustment costs in the technical efficiency: an application to global banking

    Tsionas, E.G. and Mamatzakis, Emmanuel (2017) Adjustment costs in the technical efficiency: an application to global banking. European Journal of Operational Research 256 (2), pp. 640-649. ISSN 0377-2217.

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    Abstract

    This paper proposes a new framework of measuring technical efficiency that takes into account adjustment costs in variable inputs associated with changes in efficiency. We look closely at the implicit assumption in any model of technical efficiency that inputs could freely adjust. Yet, the technical efficiency is determined from the allocation of inputs by the firm to production on the one hand and to efficiency on the other. We show that technical efficiency depends on adjustment costs in variable inputs. Estimating the proposed model has certain complexities that we overcome by employing a non-parametric Local Linear Maximum Likelihood (LLML). In the empirical section, we employ a comprehensive global banking sample and estimate bank alternative profit efficiency across a plethora of countries with strong variability in the underlying adjustment costs. Moreover, given the observed heterogeneity across countries evidence shows that adjustment costs due to personnel expenses are the highest among advanced countries. Emerging economies show strong potential in terms of efficiency post-financial crisis, mainly due to lower labor adjustment costs. Alas, our findings show some persistence in adjustment costs post the financial crisis.

    Metadata

    Item Type: Article
    Keyword(s) / Subject(s): Technical efficiency, Adjustment costs, Non-parametric Local Linear Maximum Likelihood, Global banking
    School: School of Business, Economics & Informatics > Management
    Depositing User: Emmanuel Mamatzakis
    Date Deposited: 06 Mar 2020 07:16
    Last Modified: 01 Jul 2020 18:39
    URI: https://eprints.bbk.ac.uk/id/eprint/30868

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