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Cost Efficiency of European Cooperative Banks
This paper analyzes recent trends in cost efficiency of European cooperative banks using efficient frontier analysis. Our methodology is based on stochastic frontier analysis which is run on a set of 649 European cooperative banks using data between 2006 and 2015. Our results show that average inefficiency of European cooperative banks is increasing since 2008, smaller cooperative banks are significantly more efficient than the bigger ones over the whole time period and that share of net fee and commission income to total income surprisingly seems to have no impact on bank cost efficiency.
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[1] Oliver Wyman, “Outlook for Co-operative Banking in Europe 2012,” Oliver Wyman’s report, lead authors: McCarroll, V., Habberfield, S.
[2] S. Fries, A. Taci, “Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries, ” Journal of Banking & Finance 29 (2005), pp. 55–81.
[3] C. P. Barros, N. Peypoch, J. Williams, “A note on productivity change in European cooperative banks: the Luenberger indicator approach,” International Review of Applied Economics Vol. 24, No. 2, March 2010, pp. 137–147.
[4] T. Deelchand, C. Padgett, “Size and Scale Economies in Japanese Cooperative Banking,” ICMA Centre Discussion Papers in Finance, University of Reading, DP2009-02, 2009.
[5] D. C. Wheelock, P. W. Wilson, “The evolution of cost-productivity and efficiency among US credit unions,” Journal of Banking & Finance 37 (2013), pp. 75–88.
[6] D. C. Wheelock, P. W. Wilson, “Are Credit Unions Too Small?” Federal Reserve Bank of St. Louis Working Paper Series, Working Paper 2008-033C, 2010.
[7] J. Goddarg, J. O. S. Willson, “US Credit Unions: An Empirical Investigation of Size, Age and Growth,” Annals of Public and Cooperative Economics 76:3 2005 pp. 375–406.
[8] M. Becht, P. Bolton, A. Röell, “Corporate Governance and Control,” European Corporate Governance Institute - Finance Working Paper No. 02/2002.
[9] T. W. Guinnane, “Cooperatives as Information Machines: the Lending Practices of German Agricultural Credit Cooperatives,” Economic Growth Center Discussion Paper No. 699, Yale University., pp. 1883–1914.
[10] P. Angelini, R. Di Salvo, G. Ferri, “Availability and cost of credit for small businesses: customer relationships and credit cooperatives,” Journal of Banking & Finance 22.6 (1998), pp. 925-954.
[11] H. Hesse, M. Čihák, “Cooperative Banks and Financial Stability,” IMF WP, No. 07/02, Washington D.C.: IMF.
[12] A. N. Berger, D. B. Humphrey, “Efficiency of Financial Institutions: International Survey and Directions for Future Research,” European Journal of Operational Research 98, pp. 175–212.
[13] A. N. Berger, “Distribution-free estimates of efficiency in the US banking industry and tests of the standard distributional assumptions,”, Journal of Productivity Analysis 4, pp. 261–292.
[14] D. J. Aigner, C. A. K. Lovell, P. Schmidt, “Specification and estimation of frontier production, profit and cost functions,” Journal of Econometrics 25, pp. 21–37.
[15] G. Ferrier, C. A. K. Lovell, “Measuring the cost efficiency in banking: Econometric and linear programming evidence,” Journal of Econometrics 46, pp. 229–245.
[16] G. E. Battesse, T. J. Coelli, “model of technical inefficiency effects in a stochastic frontier production function for panel data,” Empirical Economics 20, pp. 325–332.
[17] J. Jondrow, C. A. K. Lovell, I. S. Materov, P. Schmidt, “On Estimation of Technical Inefficiency in the Stochastic Frontier Production Function Model,” Journal of Econometrics, 19, pp. 233–238.
[18] M. Z. A. Karim “Comparative Bank Efficiency across Select Asean Countries,” ASEAN Economic Bulletin, 18, pp. 289–304.
[19] S. Perera, M. Skully, J. Wickermanayake, “Cost Efficiency in South Asian Banking: The Impact of Bank Size, State Ownership and Stock Exchange Listingsn,” International Review of Finance, 7:1–2, 2007: pp. 35–60.
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