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    Does labour regulation affect technical and allocative efficiency? Evidence from the banking industry

    Mamatzakis, Emmanuel and Tsionas, M.G. and Kumbhakar, S.C. and Koutsomanoli-Filippaki, A. (2015) Does labour regulation affect technical and allocative efficiency? Evidence from the banking industry. Journal of Banking & Finance 61 (S1), S84-S98. ISSN 0378-4266.

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    In light of the ongoing restructuring of the European banking industry and the challenging macroeconomic environment, banks have increased their efforts to reduce operating costs. Yet, the institutional features that affect banks’ ability to adjust costs and in particular personnel expenses, which comprise a significant part of banks’ non-interest cost structure, have not been adequately studied. This paper investigates the effect of labour market institutions and regulations on bank performance in 15 European countries over the period 2005–2010, using the Fraser index for labour regulation and its disaggregated sub-components. We propose a novel methodology to measure performance, based on the seminal work of Kumbhakar and Tsionas (2005), which allows the estimation of technical and allocative efficiency and the examination of the effect of labour market regulations in a single stage. Results indicate the existence of a positive relationship between the liberalisation of EU labour markets and allocative efficiency, while the effect on technical efficiency appears to be negative, although not statistically significant. When looking at the disaggregated components of the labour index, we further confirm that different forces are at play.


    Item Type: Article
    Keyword(s) / Subject(s): Labour regulation, Banks, Technical and allocative efficiency, Maximum likelihood
    School: Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School
    Research Centres and Institutes: Accounting and Finance Research Centre
    Depositing User: Emmanuel Mamatzakis
    Date Deposited: 05 Mar 2020 17:43
    Last Modified: 02 Aug 2023 17:57


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