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Adjustment costs in the technical efficiency: an application to global banking
journal contribution
posted on 2023-06-21, 06:01 authored by Mike Tsionas, Emmanuel C MamatzakisThis 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 ResearchISSN
0377-2217Publisher
ElsevierExternal DOI
Issue
2Volume
256Page range
640-649Department affiliated with
- Business and Management Publications
Notes
Corrigendum published in: European Journal of Operational Research Volume 257, Issue 2, 1 March 2017, Page 704Full text available
- Yes
Peer reviewed?
- Yes
Legacy Posted Date
2016-07-14First Open Access (FOA) Date
2018-06-24First Compliant Deposit (FCD) Date
2016-07-14Usage metrics
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