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Technical Efficiency and the Probability of Bank Failure among Agricultural and Non-Agricultural Banks

Author

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  • Li, Xiaofei
  • Escalante, Cesar L.
  • Epperson, James E.
  • Gunter, Lewell F.

Abstract

This study is designed to analyze bank failures from the technical efficiency standpoint under a stochastic cost frontier framework and evaluate the reliability of the technical efficiency measure as a determinant of the financial health of banks and probability to succeed or fail at the height of the current recessionary period. Results of this analysis confirm that successful agricultural banks have been operating more efficiently than surviving nonagricultural banks. This result helps to refute the contention that farm loans are at a relatively higher level of riskiness.

Suggested Citation

  • Li, Xiaofei & Escalante, Cesar L. & Epperson, James E. & Gunter, Lewell F., 2012. "Technical Efficiency and the Probability of Bank Failure among Agricultural and Non-Agricultural Banks," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124591, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea12:124591
    DOI: 10.22004/ag.econ.124591
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    References listed on IDEAS

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    1. Berger, Allen N. & Hancock, Diana & Humphrey, David B., 1993. "Bank efficiency derived from the profit function," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 317-347, April.
    2. David L. Neff & Bruce L. Dixon & Suzhen Zhu, 1994. "Measuring the Efficiency of Agricultural Banks," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(3), pages 662-668.
    3. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-444, June.
    4. Kumbhakar,Subal C. & Lovell,C. A. Knox, 2003. "Stochastic Frontier Analysis," Cambridge Books, Cambridge University Press, number 9780521666633, November.
    5. Aly, Hassan Y, 1990. "Technical, Scale, and Allocative Efficiencies in U.S. Banking: An Empirical Investigation," The Review of Economics and Statistics, MIT Press, vol. 72(2), pages 211-218, May.
    6. Allen M. Featherstone & Charles B. Moss, 1994. "Measuring Economies of Scale and Scope in Agricultural Banking," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(3), pages 655-661.
    7. Drake, Leigh & Hall, Maximilian J. B., 2003. "Efficiency in Japanese banking: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 27(5), pages 891-917, May.
    8. R. Alton Gilbert & Kevin L. Kliesen, 1996. "Are some agricultural banks too agricultural?," Review, Federal Reserve Bank of St. Louis, vol. 78(Jan), pages 23-36.
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    Cited by:

    1. Mogilat , Anastasia & Ipatova, Irina, 2016. "Technical efficiency as a factor of Russian industrial companies’ risks of financial distress," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 42, pages 05-29.

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