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Bank Efficiency in Transitional Countries: Sensitivity to Stochastic Frontier Design

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  • Zuzana Irsova
  • Tomas Havranek

Abstract

This article provides an empirical insight on the heterogeneity in the estimates of banking efficiency produced by the stochastic frontier ap- proach. Using data from five countries of Central and Eastern Europe, we study the sensitivity of the efficiency score and the efficiency ranking to a change in the design of the frontier. We found that the average scores are significantly smaller when the transcendental logarithmic functional form is used in the profit efficiency measurement and when the scaling effect is neglected in the cost efficiency measurement. The implied bank ranking is robust to changes in the stochastic frontier definition for cost efficiency, but not for profit efficiency.
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  • Zuzana Irsova & Tomas Havranek, 2011. "Bank Efficiency in Transitional Countries: Sensitivity to Stochastic Frontier Design," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 18(2), pages 230-270, December.
    • Handle: RePEc:spr:trstrv:v:18:y:2011:i:2:p:230-270
    DOI: 10.1007/s11300-011-0197-z
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    Cited by:

    1. Francesco Aiello & Graziella Bonanno, 2018. "On The Sources Of Heterogeneity In Banking Efficiency Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 32(1), pages 194-225, February.
    2. Havranek, Tomas & Irsova, Zuzana & Lesanovska, Jitka, 2016. "Bank efficiency and interest rate pass-through: Evidence from Czech loan products," Economic Modelling, Elsevier, vol. 54(C), pages 153-169.
    3. repec:cnb:ocpubv:rb11/2 is not listed on IDEAS
    4. repec:cnb:ocpubv:rb10/2 is not listed on IDEAS
    5. Tomas Havranek & Zuzana Irsova, 2013. "Determinants of Bank Performance in Transition Countries: A Data Envelopment Analysis," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 20(1), pages 1-17, April.
    6. Iveta Palečková, 2019. "Cost Efficiency Measurement Using Two-Stage Data Envelopment Analysis in the Czech and Slovak Banking Sectors," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 69(3), pages 445-466, September.
    7. repec:cnb:ocpubv:rb12/1 is not listed on IDEAS
    8. Kristína Kočišová & Iveta Palečková, 2017. "The Super-efficiency Model and its Use for Ranking and Identification of Outliers," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 65(4), pages 1371-1382.
    9. Francesco Aiello & Graziella Bonanno, 2016. "Efficiency in banking: a meta-regression analysis," International Review of Applied Economics, Taylor & Francis Journals, vol. 30(1), pages 112-149, January.
    10. repec:cnb:ocpubv:rb12/2 is not listed on IDEAS
    11. Thu Phan & Kevin Daly & Anh-Tuan Doan, 2018. "The effects of risks and environmental factors on bank cost efficiency: A study in East Asia and Pacific region," Cogent Economics & Finance, Taylor & Francis Journals, vol. 6(1), pages 1510719-151, January.
    12. Tin H. Ho & Dat T. Nguyen & Thanh Ngo & Tu D. Q. Le, 2021. "Efficiency in Vietnamese Banking: A Meta-Regression Analysis Approach," IJFS, MDPI, vol. 9(3), pages 1-15, August.
    13. Iveta Palečková, 2015. "Banking Efficiency in Visegrad Countries: A Dynamic Data Envelopment Analysis," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 63(6), pages 2085-2091.
    14. Iveta Palečková, 2015. "Banking efficiency in the Czech Republic and Slovakia using the DEA Window Analysis," Working Papers 0012, Silesian University, School of Business Administration.
    15. Iveta Palečková, 2018. "Differences in Efficiency between Banks in Financial Conglomerates and other Banks in the Banking Sectors in Visegrad Countries," Working Papers 0052, Silesian University, School of Business Administration.
    16. Čelesnik Goran & Radujković Mladen & Vrečko Igor, 2018. "Resolving Companies in Crisis: Agile Crisis Project Management," Organizacija, Sciendo, vol. 51(4), pages 223-237, December.
    17. repec:cnb:ocpubv:rb11/1 is not listed on IDEAS

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    More about this item

    Keywords

    Banking; Efficiency analysis; Stochastic frontier approach; Transitional countries; C13; G21; L25;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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