Charter status, ownership type and efficiency in the thrift industry

Deregulation during the 1980s allowed savings and loan associations to undertake many of the same activities as mutual savings banks, so that competition among thrifts increased, and they became more homogeneous in nature. At the same time, according to agency theory, mutual institutions should experience less efficient operations than stock institutions due to differences in monitoring and compensation of management. The purpose of this study, then, is two fold: first, to determine whether mutual savings banks exhibit the same cost behaviour as savings and loans; and second, to determine whether mutual institutions are less cost efficient than stock institutions. To compare cost structures and cost efficiencies, a three input, three output, translog cost frontier is estimated for mutual savings banks, mutual S&Ls, and stock S&Ls. Approximately 1500 observations, restricted to the states in which mutual savings banks are chartered, are extracted from the 1990 OTS data to be used in the estimation. Each type of institution is found to have a unique cost function. The data are then used in a second regression to determine which characteristics are correlated with the inefficiency scores. It appears that mutual savings banks do have a different cost structure than savings and loans. As well, the comparison of stock versus mutual savings and loans reveals that mutuals exhibit cost efficiency, a result that contradicts agency theory.