EconStor >
Deutsche Bundesbank, Forschungszentrum, Frankfurt am Main >
Discussion Paper Series 2: Banking and Financial Studies, Deutsche Bundesbank >

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10419/19734
  
Title:Measurement matters: Input price proxies and bank efficiency in Germany PDF Logo
Authors:Koetter, Michael
Issue Date:2005
Series/Report no.:Discussion Paper, Series 2: Banking and Financial Supervision 2005,01
Abstract:Most bank efficiency studies that use stochastic frontier analysis (SFA) employ each bank's own implicit input price when estimating efficient frontiers. But the theoretical foundation of most studies is a cost minimisation and/ or profit maximisation problem assuming perfect input markets. At the very least, traditional input price proxies therefore contain substantial measurement error. In this paper, we examine the magnitude and direction of this error in cost and profit efficiency (CE and PE) measurement. We suggest two input market definitions to approximate exogenous input prices alternatively and estimate CE and PE of German banks between 1993 and 2003. Our main findings are threefold. First, after accounting for systematic differences across banks, mean CE is sensitive to alternative input prices. Second, distortions of mean PE due to traditional input prices are small. Third, across CE models small cooperative banks located in large western states are identified as top performers. Large banks and those located in eastern states rank lowest.
Subjects:Germany
Banks
cost efficiency
profit efficiency
stochastic frontier analysis
measurement error
JEL:C51
L11
G20
Document Type:Working Paper
Appears in Collections:Discussion Paper Series 2: Banking and Financial Studies, Deutsche Bundesbank

Files in This Item:
File Description SizeFormat
200501dkp_b.pdf289.14 kBAdobe PDF
No. of Downloads: Counter Stats
Download bibliographical data as: BibTeX
Share on:http://hdl.handle.net/10419/19734

Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.