Assessing dynamic inefficiency of the Spanish construction sector pre- and post-financial crisis

This paper undertakes the full decomposition of dynamic cost inefficiency into technical, scale and allocative inefficiency based on the dynamic directional distance function. The empirical application estimates dynamic inefficiency in the Spanish construction industry before and during the current financial crisis over the period 2001–2009. Static inefficiency measures are biased in a context of a significant economic crisis with large investments and disinvestments as they do not account for costs in the adjustment of quasi-fixed factors. Allocative inefficiency is smaller, while technical inefficiency is larger when using the dynamic compared to the static framework. Results further indicate that overall dynamic cost inefficiency is very high with technical inefficiency being the largest component, followed by allocative and scale inefficiency. Moreover, overall dynamic cost inefficiency is significantly larger before the beginning of the financial crisis than during the financial crisis. Larger firms are less technically and scale inefficient than smaller firms on average, but have more problems in choosing the mix of inputs that minimizes their long-term costs. Firms that went bankrupt, on average, have a higher overall dynamic cost inefficiency and scale inefficiency than continuing firms.     

Determinants of bank efficiency: The case of Brazil

This paper analyzes the efficiency of the Brazilian banking sector over the post-privatization period of 2000–2007. We employ a Bayesian stochastic frontier approach, which provides exact efficiency estimates and confidence intervals and thus, allows an accurate comparison across institutions and bank groups. The results suggest that large banks are the most cost and profit efficient, supporting the concentration process observed in recent years. Foreign banks have achieved a good performance through either the establishment of new affiliates and the acquisition of local banks. The remaining public banks have had improvements in cost efficiency, but are relatively profit inefficient. Finally, we observe a positive impact of capitalization on efficiency.     

Decomposing capacity utilization in data envelopment analysis: An application to banks in India

This paper briefly reviews the existing methods of capacity utilization in nonparametric framework from economic perspectives, and then suggests an alternative in the light of limitations therein. In the spirit of work by Coelli et al. [Coelli, T.J., Grifell-Tatje, E., Perelman, S., 2002. Capacity utilisation and profitability: A decomposition of short run profit efficiency. International Journal of Production Economics 79, 261–278], we propose two methods, radial and non-radial, to decompose the input-based physical (technological) capacity utilization into various meaningful components viz., technical inefficiency, ray economic capacity utilization and optimal capacity idleness. A case study of Indian banking industry is taken as an example to illustrate the potential application of these two methods of decomposition. Our two broad empirical findings are that first, competition created after financial sector reforms generates high efficiency growth, and reduces excess capacity; second, the cost gap of the short-run cost from the actual cost is higher for the nationalized banks over the private banks indicating that the former banks, though old, do not reflect their learning experience in their cost minimizing behavior.     

Technical and allocative efficiency in European banking

This paper specifies an empirical framework for estimating both technical and allocative efficiency using the translog cost-share system, thus providing a solution to the issue known in the literature as the Greene problem. The model is applied to a large panel of European banks and the results are compared with those of a model that does not include an allocative inefficiency term and also with those obtained by using a consistent Bayesian technique. Our results suggest that models which include only technical efficiency, significantly overestimate it, while parameter estimates from the model that includes both technical and allocative efficiency are very close to the ones obtained from the Bayesian approach, thus enhancing our confidence in the proposed methodology. Finally, the fact that allocative efficiency of banks in our sample improves more than technical efficiency underlines the importance of including an allocative inefficiency component in parametric efficiency models.     

Primal and dual dynamic Luenberger productivity indicators

This paper develops primal and dual versions of the dynamic Luenberger productivity growth measures that are based on the dynamic directional distance function and intertemporal cost minimization, respectively. The empirical application focuses on panel data of Dutch dairy farms over the period 1995–2005. Primal dynamic Luenberger productivity growth averages 1.5 percent annually in the period under investigation, with technical change being the main driver of annual change. Dual dynamic Luenberger productivity growth is −0.1 percent in the same period. Improvements in technical inefficiency and technical change are partly counteracted by deteriorations of allocative inefficiency, with large dairy farms presenting a slightly higher productivity growth than small dairy farms.     

Profitability of a sample of Portuguese bank branches and its decomposition into technical and allocative components

The efficiency literature, both using parametric and non-parametric methods, has been focusing mainly on cost efficiency analysis rather than on profit efficiency. In for-profit organisations, however, the measurement of profit efficiency and its decomposition into technical and allocative efficiency is particularly relevant. In this paper a newly developed method is used to measure profit efficiency and to identify the sources of any shortfall in profitability (technical and/or allocative inefficiency). The method is applied to a set of Portuguese bank branches first assuming long run and then a short run profit maximisation objective. In the long run most of the scope for profit improvement of bank branches is by becoming more allocatively efficient. In the short run most of profit gain can be realised through higher technical efficiency.     

Estimating output gains by means of Luenberger efficiency measures

In this paper we propose a new measure of input allocative efficiency that we estimate using directional distance functions. Our new measure compares the gain in output if a firm reduces technical inefficiency for the direct production possibility set and the gain in output if the firm reduces technical inefficiency for the indirect production possibility set. Because the directional distance function uses a translated origin, the gain in output from an optimal reallocation of inputs can be estimated for non-radial expansions in output. We estimate efficiency for Japanese banks during 1992–1999. The gains in outputs from reducing allocative inefficiency by reallocating inputs are greater than the gains in outputs that can be attained by reducing technical inefficiency.     

Determinants of allocative and technical inefficiency in stochastic frontier models: An analysis of Norwegian electricity distribution firms

Recent econometric advances have made it possible to distinguish between persistent and transient technical inefficiency along with allocative inefficiency in stochastic frontier models for panel data. Kumbhakar et al. (2020) and Lai and Kumbhakar (2019) introduce a methodology that allows for the estimation of these inefficiency components and costs therefrom, while including determinants of both components of technical inefficiency. We extend these models to include technical change and determinants of allocative inefficiency (input misallocation). Including a set of variables that influence input misallocation, we are able to determine the effects of these variables on the cost of allocative inefficiency. We provide empirical evidence on the costs of all three types of inefficiency using data on 149 Norwegian electricity distribution firms between 2000 and 2016. We find that the cost of input misallocation is only slightly lower than that of technical inefficiency. Our results reject a commonly imposed modeling assumption that firms are fully allocatively efficient.     

Distribution of cost and profit efficiency: Evidence from Indian banking

This paper uses the nonparametric DEA methodology to estimate cost and profit efficiency of Indian banks during the post-reform period. The results show considerable variation in average levels of profit efficiency across various ownership categories of banks. In general, state owned banks are found to be more efficient than their private counter parts. Further, efficiency tends to be low among the small banks (assets up to Rs. 50 billion), indicating that at the existing scale of operations, these banks are operating far below the efficient frontier. We also examine the distribution of efficiency using nonparametric kernel density estimates. The analysis reveals a rightward-shift of the efficiency distribution over the years. A major part of this shift comes from the state owned banks. Based on the conditional distribution, the study finds strong evidence of ownership explaining the efficiency differential of banks. Additionally, bank size and product-mix are also found to be important, although to a lesser extent.     

Financial distress drivers in Brazilian banks: A dynamic slacks approach

This study applies the Dynamic Slacks Based Model (DSBM) developed by Tone and Tsutsui (2010) in order to assess the evolution of input saving/output increasing potentials in major Brazilian Banks from 1996 to 2011. We propose that these potentials or slacks can be used as proxies for an eventual financial distress situation in the future. The main research objective is to determine whether or not different characteristics of bank type – related to ownership, size, and merger and acquisition processes – are significantly related to inefficiency levels and, by extension, to an eventual financial distress situation, since higher inefficiency levels also imply lower input saving/output decreasing potentials. Based on a balanced panel model, secondary data from Economatica were collected and analyzed. Results indicate higher inefficiency levels and slacks in small public and national banks. Policy implications are also addressed.