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

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journal contribution
posted on 2023-06-21, 06:01 authored by Mike Tsionas, Emmanuel C Mamatzakis
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.

History

Publication status

  • Published

File Version

  • Accepted version

Journal

European Journal of Operational Research

ISSN

0377-2217

Publisher

Elsevier

Issue

2

Volume

256

Page range

640-649

Department affiliated with

  • Business and Management Publications

Notes

Corrigendum published in: European Journal of Operational Research Volume 257, Issue 2, 1 March 2017, Page 704

Full text available

  • Yes

Peer reviewed?

  • Yes

Legacy Posted Date

2016-07-14

First Open Access (FOA) Date

2018-06-24

First Compliant Deposit (FCD) Date

2016-07-14

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