long run estimates of technological change and scale economies in a dynamic framework australian permanent building societies 1974 1990 abstract this paper formulates and estimates a dynamic model to investigate the characteristics of the cost function of australian permanent building societies while the results suggest that the societies adjust costs quickly to long run levels the modelling of cost dynamics is shown to have a significant influence on estimates of scale economies and on the identification of the timing of shifts in the cost frontier and changes in the growth of total factor productivity

mixing and matching prospective financial sector mergers and market valuation abstract which types of mergers are likely to be most productive for banks and other financial firms in the us from a management perspective mixing disparate firms may be difficult but may offer significant gains from diversification the opposite applies to matching similar firms this paper considers life insurance property and casualty insurance securities and commercial firms as potential matches for banks it examines a measure of diversification gains from potential consolidation based on option pricing and a model of the building blocks of the industries based on arbitrage pricing theory the results identify potential diversification gains from virtually all combinations involving banking and insurance which arise because common factors are combined in different ways and because insurance is already well diversified

estimation of economies of scale in banking using a generalized functional form this paper addresses four issues that arise in the estimation of economies of scale in the commercial banking industry first a common assumption underlying many of the studies of economies of scale in banking is the assumption of a cobb douglas production function with exogenous input prices the use of a cobb douglas production function facilitates the estimation of the output elasticity of cost however there does not appear to be any other reason a priori for such an assumption this paper utilizes a box cox hereafter b c generalized functional form methodology to directly test the assumption of an underlying cobb douglas production function second if the assumption of a cobb douglas production function is inappropriate as a description of the production process of the financial firm estimates of the output elasticity may be biased the sensitivity of the estimates of this elasticity to the choice of functional form can also be examined through the use of a generalized functional form methodology third no general consensus has been reached regarding the appropriate definition of bank output thus a diversity of measures of bank output have been employed in previous estimates of economies of scale in banking the sensitivity of the estimated output elasticity of cost to the selection of several alternative measures of output is examined through the use of the generalized functional form methodology finally the b c estimates of the cost function for commercial banks can be used

do mergers improve the x efficiency and scale efficiency of u s banks evidence from the 1980s a central issue currently debated among bank analysts and economists is whether mergers enhance the efficiency of surviving banks this paper investigates the postmerger performance of acquiring banks that participated in a merger during the period 1980 90 the evidence suggests that acquirers failed to improve x efficiency after the merger acquiring banks however experienced moderate gains in scale efficiency relative to a control sample the second part of the paper uses regression analysis to identify factors influencing the performance of merging banks the regression results suggest that improvements in postmerger performance depend on the ability of the bank to strengthen asset quality the author finds no evidence to support the theory that in market mergers lead to significant improvements in efficiency copyright 1997 by ohio state university press

determinants of bank growth choice abstract we study the determinants of bank growth in a two stage logistic regression model we first compare banks that branch bank acquire or product expand with banks that do not grow externally banks that are federally chartered in states with higher income growth and with higher labor prices are less likely to grow externally larger banks are more likely to grow externally in the second stage we study determinants of growth activity for banks that expand products branch or acquire other banks depending on the time period bank structure regulatory environment performance and balance sheet characteristics determine bank growth choices

macroeconomic features of the french revolution this paper describes aspects of the french revolution from the perspective of theories about money and government budget constraints we describe how unpleasant fiscal arithmetic gripped the old regime how the estates general responded to reorganize france s fiscal affairs and how fiscal exigencies impelled the revolution into a procession of monetary experiments ending in hyper inflation

empirical studies of financial innovation lots of talk little action this paper reviews the extant empirical studies of financial innovation adopting broad criteria we could find only somewhat more than two dozen studies and since some financial innovations are examined by more than one study they cover only seventeen phenomena especially striking is the fact that only two studies offer tests of the broad hypotheses concerning the environmental conditions spurring financial innovation e g regulation taxes unstable macroeconomic conditions and ripe technologies that have been advanced in descriptive articles we offer some tentative conjectures as to why empirical studies of financial innovation are comparatively rare among our suggested culprits is an absence of accessible data we urge financial regulators to undertake more surveys of financial innovation and to make the survey data more available to researchers

the competitive dynamics of geographic deregulation in banking implications for productive efficiency deregulation of geographic restrictions in banking over the past 20 years has intensified both potential and actual competition in the industry the accumulating empirical evidence suggests that potential efficiency gains associated with consolidating banks are often not realized we evaluate the impact of this increased competition on the productive efficiency of nonmerging banks confronted with new entry in their local markets and find that the incumbent banks respond by improving cost efficiency thus studies evaluating the impact of bank mergers on the efficiency of the combining parties alone may be overlooking the most significant welfare enhancing aspect of merger activity

systemic risk and diversification across european banks and insurers the mutual and cross company exposures to fat tail distributed risks determine the potential impact of a financial crisis on banks and insurers we examine the systemic interdependencies within and across the european banking and insurance sectors during times of stress by means of extreme value analysis while insurers exhibit a slightly higher interdependency in comparison with banks the interdependency across the two sectors turns out to be considerably lower this suggests that downside risk can be lowered through financial conglomeration

monetary fiscal and reserve requirement policy in a simple monetary growth model the authors consider an otherwise conventional monetary growth model in which spatial separation and limited communication create a transactions role for currency and stochastic relocation gives rise to financial intermediaries in this framework they consider how changes in fiscal and monetary policy and in reserve requirements affect inflation capital formation and nominal interest rates there is also considerable scope for multiple equilibria the authors show how reserve requirements that never bind along actual equilibrium paths can play an important role in avoiding undesirable equilibria finally they demonstrate that changes in apparently nonbinding reserve requirements can have significant real effects coauthors are mark g guzman elisabeth huybens and bruce d smith copyright 1997 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

explaining bank market to book ratios evidence from 2006 to 2009 abstract this paper examines the market price to book value ratio for 6604 bank stock observations from december 31 2006 through june 30 2009 we relate each bank s market price to book value ratio to several fundamental ratios and whether the bank took funds from the us treasury under the troubled asset relief program tarp the results of this study show that banks who took tarp funds have lower market price to book value ratios in addition lower relative costs higher non interest income and lower assets in non accrual or foreclosed status are associated with higher market price to book value ratios while controlling for size and other bank attributes

friends acquaintances or strangers partner selection in r d alliances like governance structure and alliance scope partner selection may serve to safeguard firms intellectual assets in r d alliances we categorize potential alliance partners into friends acquainta

the simple economics of bank fragility banks are linked through the interbank deposit mar ket participations like syndicated loans and deposit interest rate risk the similarity in exposures carries the potential for systemic breakdowns this potential is either weak or strong depending on whether the linkages remain or vanish asymptotically it is shown that the linearity of the bank portfolios in the exposures in combi nation with a condition on the tails of the marginal distributions of these exposures determines whether the potential for systemic risk is weak or strong we show that if the exposures have marginal normal distributions the potential for systemic risk is weak while if e g the student distributions apply the potential is strong

big bank mergers in europe an analysis of the cost implications this paper examines the cost implications from hypothetical cross border bank mergers in the eu in light of recent claims that substantial cost savings could be expected as the result of the eu s single market programme for financial services in fact our results suggest only limited opportunities for costs saving from big bank mergers and indicate that such mergers are more likely to result in an increase in total costs while there is a large variation in the simulated cost outcomes the greatest opportunities for cost savings would appear to be generated by mergers between german and italian banks in contrast mergers between french and german banks appear likely to result in substantial cost increases although the overall findings suggest limited benefits from cross border mergers between large banks this may be a reflection of the methodology merger simulations are carried out hypothetically ignoring any prior information about the pairings we assume no premiums or merger costs and no further synergies resulting from such things as branch closures or a restructuring of the product mix these assumptions may cause us to understate the potential reduction in total costs resulting from large bank mergers and therefore our estimates provide the most pessimistic of total cost reduction outcomes in conclusion the substantial variation of cost outcomes generated suggests that large banks seeking economies through cross border mergers should select potential partners with great care

scale and scope economies in the multi product banking firm abstract the multi product nature of the banking firm is examined utilizing the translog cost function this analysis indicates that contrary to conventional wisdom natural monopoly scale economies and product specific decreasing costs are not robust characterizations of the banking industry there is however evidence that the cost function is characterized by economies of scope the implications of these results are discussed and extensions of this approach suggested

profit efficiency for spanish savings banks abstract frontier profit efficiency is examined for spanish savings banks over 1986 1991 a period in which the spanish banking has seen considerable deregulation in spain the standard assumption that firms operate in a perfectly competitive output market is unlikely to be met thus we use an alternative profit function specification which allows for market power in the output market profit efficiency is determined using the thick frontier approach and estimated using both alternative and standard profit function specifications to illustrate the effect of different assumptions regarding the competitiveness of the output market estimation of the alternative profit function suggests that the profit inefficiency of spanish savings banks which averaged 28 fell by forty percent between 1986 to 1991 the standard profit function which we believe yields less reliable results generated greater average inefficiency there was no significant shift up or down in the profit frontier itself

finding the most preferred alliance structure between banks and insurance companies in this paper we have studied alternative alliances between banks and insurance companies first we defined six different possible structure models for such alliances and nine criteria used to evaluate the models the models and the criteria were introduced together with bank and insurance experts the experts are representatives of the top management of finnish banks and insurance companies searching for the most preferred alliance model is a multiple criteria decision making mcdm problem to solve the problem we used an expert panel and the analytic hierarchy process ahp based on the evaluations of the panel the alternatives financial conglomerate and cross selling agreement no overlapping service channels are most preferred which one is chosen depends on how risk is emphasized

the sources of productivity change in spanish banking abstract in this paper we examine the pattern of productivity change in spanish banking over the period 1986 1993 two sectors dominate spanish banking commercial banks and the faster growing savings banks we begin by examining productivity change separately within each sector however since the two sectors are gradually becoming more competitive we continue by merging the two sectors and by examining productivity change in the industry the merging procedure follows a methodology originally proposed by charnes cooper and rhodes 1981 in which intra sectoral managerial inefficiency is eliminated prior to merging this procedure allows us to distinguish differences in managerial efficiency within each sector from differences in the institutional efficiency of the two sectors it also enables us to decompose potential productivity change into institutional efficiency change technical change and the impact of scale economies we find the commercial banks to have had a slightly lower rate of productivity growth but a slightly higher rate of potential productivity growth we attribute this phenomenon to differences in both managerial efficiency and institutional efficiency to differences in the rate of technical progress and to the adverse impact of diseconomies of scale in the commercial banking sector

the performance of internet based business models evidence from the banking industry the initial internet bank startups tended to underperform branching bank startups this suggested that internet only business models were not economically viable for banks however firms that pioneer new business models may benefit substantially from experience as they grow older and firms that use automated production technologies may benefit from scale effects as they grow larger econometric analysis of internet only bank startups finds strong evidence of the latter but not the former effect the results suggest that internet only banking success depends on attaining sufficient scale and strong management practices

the impact of islamic banking on the cost efficiency and productivity change of malaysian commercial banks this study employs stochastic frontier analysis sfa to analyse malaysian commercial banks during 1996 2002 and particularly focuses on determining the impact of islamic banking on performance we derive both net and gross efficiency estimates thereby demonstrating that differences in operating characteristics explain much of the difference in costs between malaysian banks we also decompose productivity change into efficiency technical and scale change using a generalized malmquist productivity index on average malaysian banks experience moderate scale economies and annual productivity change of 2 68 with the latter driven primarily by technical change tc which has declined over time our gross efficiency estimates suggest that islamic banking is associated with higher input requirements however our productivity estimates indicate that full fledged islamic banks have overcome some of these cost disadvantages with rapid tc although this is not the case for conventional banks operating islamic windows merged banks are found to have higher input usage and lower productivity change suggesting that bank mergers have not contributed positively to bank performance finally our results suggest that while the east asian financial crisis had a short term costreducing effect in 1998 the crisis triggered a long lasting negative impact by increasing the volume of nonperforming loans

the dominance of inefficiencies over scale and product mix economies in banking abstract this study measures and analyzes inefficiencies for all u s banks in 1984 inefficiencies are measured relative to a thick frontier cost function and are found to dominate measured scale and product mix economies most inefficiencies are operational in nature involving the overuse of physical inputs rather than financial involving overpayment of interest also technical inefficiencies proportionate overuse of all inputs dominate allocative inefficiencies improper mix of inputs these results suggest that competitive pressures in banking from deregulation will be focused primarily on banks that do not control costs rather than on those of a particular size or product mix

a study of bank efficiency taking into account risk preferences abstract i use the stochastic cost frontier approach to investigate efficiency of banks operating in the third federal reserve district accounting for the quality and riskiness of bank output in addition to the mean and mode of the conditional distribution of the one sided error term i calculate confidence intervals for the inefficiency measures based on the conditional distribution the results indicate that third district banks are operating at cost efficient output levels and product mixes but are not efficiently using their inputs the second part of the article relates the inefficiency measures to several correlates

traditional and nontraditional banking an information theoretic approach abstract this paper uses a multiproduct approach to analyze the costs of a sample of large banks where bank outputs are measured to account for the different types of information produced by banks diseconomies of scope are found between traditional banking activities of originating and monitoring loans and nontraditional activities of loan selling and buying this suggests maintaining fire walls between commercial bank functions and investment bank functions after the glass steagall act is repealed will not sacrifice joint production economies it also suggests that arguments for repeal of the act based on the existence of such economies are ill founded

the impact of mean reversion of bank profitability on post merger performance in the banking industry abstract this research study examines the tendency for serial correlation in bank holding company profitability finding significant evidence of reversion to the industry mean in profitability the paper then considers the impact of mean reversion on the evaluation of post merger performance of bank holding companies the research concludes that when an adjustment is made for the mean reversion post merger results significantly exceed those of the industry in the first 5 years after the merger

technological change in large u s commercial banks this article examines technological change its relationship to firm size and its impact on the efficient scale of output and product mix for large u s commercial banks the results suggest that technological change lowered real costs by about one percent per year increased the cost minimizing scale of outputs and affected product mix the authors do not find support for the galbraith schumpeter hypothesis this suggests that the largest banks cannot use innovation alone to outpace smaller banks the major implications are that public policies allowing freer banking combinations do not necessarily run counter to the public interest copyright 1991 by university of chicago press

optimal nonuniform prices we consider optimal nonuniform pricing schedules where the price depends upon the amount purchased such schedules are regularly used by public utilities and other services welfare optimal nonuniform prices are related to the theory of optimal uniform prices developed by ramsey we characterize situations in which upward or downward discontinuities in pricing schedules are optimal our results are applicable to a number of related problems including optimal taxation insurance and incentives economic theory has confined most of its attention to markets with uniform prices in which the price per unit charged is invariant to the level of a customer s purchases this focus is warranted when goods are resellable since any attempt to charge nonuniform prices could be circumvented by reselling amongst customers but when goods are not resellable nonuniform prices are not only possible but common public utilities have declining block pricing with lower unit charges for large levels of consumption many agencies providing services including communications transportation even education use two part pricing with a fixed entry or retainer charge and a further charge per unit consumption nonuniform price schedules can be expected to be ever more common as services become a larger fraction of total output the increasing prevalence of nonuniform pricing policies have made them the focus of recent public and economic attention oi 1971 feldstein 1972 and ng and weisser 1974 have examined optimal two part pricing policies leland and meyer 1976 examine block pricing and show by example that optimal welfare policies may require nonuniform prices if zero profit constraints are binding in this paper we consider arbitrary nonuniform pricing policies using variational techniques two part and block pricing schedules are of course special cases of the environment we consider the work most closely related to our examination is the seminal paper by spence 1978 and subsequent analysis by roberts 1979 spence however does not pay explicit attention to the key role played by constraints on optimal pricing schedules roberts considers upward price discontinuities which lead to bunching of consumers at a given level of consumption but not downward price discontinuities which lead to regions in which no consumer chooses to consume gaps bunching or gaps may appear in the optimal price schedule even when underlying demand and cost functions are smooth and well behaved the prevalence of discontinuous pricing schedules e g the block pricing structures of public utilities argues that these questions are of practical as well as theoretical interest

a framework for analyzing efficiency risks costs and innovations in the payments system the market for payment instruments such as cash checks and electronic funds transfers is one of the largest most important and economically interesting markets in the economic system virtually every economic transaction requires the use of a payment instrument therefore on a value basis the demand for payment instruments equals the demand for all other goods services assets and other financial instruments traded in the economy combined in a monetary economy the buyers and sellers of any commodity must not only agree on the price and quantity to be exchanged but must also concur on the payment method that will be employed in the exchange that is every commodity buyer takes on the role of a payor and every commodity seller takes on the role of a payee and they jointly demand a payment instrument of equal value to the commodities exchanged the size of payments markets is illustrated in table 1 which shows transactions

the effects of ownership on bank efficiency in latin america in recent years many countries have privatised their state owned banks and encouraged foreign investment this article investigates the roles of state and private ownership and foreign and domestic ownership on the performance of banks across latin america using a range of financial and economic ratios data envelopment analysis dea and regression modelling the study reveals that by 2001 there was surprisingly little difference in performance between state owned and privately owned banks and between foreign and domestically owned banks the study also reports significantly different levels of bank performance in different latin american countries suggesting that country differences outweighed ownership differences in explaining performance

malmquist indices of productivity growth during the deregulation of norwegian banking 1980 89 productivity growth during the deregulation of the norwegian banking industry is studied within the framework of data envelopment analysis which explicitly allows for multiple outputs introducing malmquist indices for productivity growth total growth can be decomposed into frontier growth and change in each bank s distance to the frontier both the total growth index and its components can be consistently chained over time we find productivity regress at the average bank prior to the deregulation but rapid growth when deregulation took place deregulation also led to less dispersion of productivity levels within the industry

do mergers improve efficiency evidence from restructuring the us electric power sector abstract this paper analyses the performance impact of the merger wave which took place in the us electricity industry during the period 1994 2003 it does so by analyzing the impact on operating and total cost in electricity distribution while there are past studies of efficiency and productivity effects as well as of prices profits and other outcomes this study differs in several ways first the database consists of many merging and non merging firms rather than only a few on which to base inferences second all of these mergers arise in a single industry greatly facilitating controlled comparison third we have data on the several years of pre merger and post merger efficiency of the specific merging units unlike virtually all past studies finally we employ a powerful nonparametric technique data envelopment analysis to measure the efficiency of each operating unit the results indicate that electricity mergers are not consistent with improved cost performance

banks responses to deregulation profits technology and efficiency the deregulation of interest rates in the early 1980s raised bank funding costs and lowered profits in response banks raised fees for deposit services reduced branch operating costs and shifted to higher earning assets rates of return did not regain their prederegulation levels until the early 1990s our goal is to decompose the change in bank profits following deregulation into i intemal bank initiated adjustments to the new regulatory structure and ii external contemporaneous changes in banks business environment this decomposition will depend in part on the assumed competitive structure of the banking industry with perfect competition output and input prices are part of the external environment and banks responses are limited to changes in output and input quantities an alternative approach assumes imperfect competition where banks have some control over output prices deposit fees minimum balance requirements and interest rates on certain loans and output quantities and input prices comprise the external environment the altemative model is supported by the data using this model large banks but not smaller banks are found to have relied primarily on changing output prices and input use to mitigate and reverse the negative effects of deregulation on profits the adjustment to deregulation was essentially complete after four years following this additional changes in bank profitability during the late 1980s were primarily due to changes in banks business environment

output allocative and technical efficiency of banks abstract in this paper we calculate output allocative and technical efficiency for a sample of small banks operating in 1982 we do so by estimating a shephard type output distance function as a deterministic frontier in general we find that the banks in our sample are output inefficient

is the internet delivery channel changing banks performance the case of spanish banks abstract in spite of the conspicuous use of the internet as a delivery channel there is a relative dearth of empirical studies that provide a quantitative analysis of the impact of the internet on banks financial performance this paper attempts to fill this gap by identifying and estimating the impact of the adoption of a transactional web site on financial performance using a sample of 72 commercial banks operating in spain over the period 1994 2002 the impact on banks performance of transactional web adoption takes time to appear the adoption of the internet as a delivery channel involves a gradual reduction in overhead expenses particularly staff marketing and it this effect is statistically significant after one and a half years after adoption the cost reduction translates into an improvement in banks profitability which becomes significant after one and a half years in terms of roa and after three years in terms of roe the paper also concludes that the internet is being used as a complement to rather than a substitute for physical branches

a price discrimination analysis of monetary policy monetary policy is analysed within a model that appeals to legal restrictions on private intermediation to explain the coexistence of currency and interest bearing default free bonds the interaction between such legal restrictions and monetary policy is illustrated in a version of the overlapping generations model the model shows that legal restrictions and the use of both currency and bonds permit the government to levy a nonlinear inflation tax and that such a tax may be better in terms of the pareto criterion than a linear inflation tax

a multiproduct cost study of savings and loans this paper investigates the cost structure of savings and loans most studies of financial institutions have failed to take into account the multiproduct nature of these institutions using the multiproduct approach the existence of subadditivity multiproduct global and product specific economies of scale and scope and substitutability between inputs is investigated a translogarithmic cost function is estimated using 1982 data on california savings and loans restrictive functional forms also estimated are rejected standard errors for the statistics calculated are estimated and various statistical tests are conducted previous authors have not calculated standard errors for these statistics no evidence of subadditivity in the industry is found in order to investigate the impact of deregulation on the financial services industry it is necessary to know the cost structure of the industry optimal firm size and product mix can be determined once the structure is known the presence of scale economies would imply that smaller firms or entering firms that operate at a small scale would be at a cost disadvantage compared with larger established firms a finding of economies of scope i e economies of joint production would imply that firms that were specialized would be at a cost disadvantage and that regulations that restrict the outputs a firm is allowed to produce may lead to inefficient production

the impact of liberalization on the productive efficiency of indian commercial banks abstract we examine the productive efficiency of 70 indian commercial banks during the early stages 1986 1991 of the ongoing period of liberalization we use data envelopment analysis to calculate radial technical efficiency scores we then use stochastic frontier analysis to attribute variation in the calculated efficiency scores to three sources a temporal component an ownership component and a random noise component we find publicly owned indian banks to have been the most efficient followed by foreign owned banks and privately owned indian banks we also find a temporal improvement in the performance of foreign owned banks virtually no trend in the performance of privately owned indian banks and a temporal decline in the performance of publicly owned indian banks we attempt to explain these patterns in terms of the government s evolving regulatory policies

bank capitalization and cost evidence of scale economies in risk management and signaling we amend the standard cost model to account for the role of financial capital in banking the cost function is conditioned on the level of capital but we model the demand for financial capital so that it can serve as a cushion against insolvency for potentially risk averse managers and as a signal of risk for less informed outsiders scale economies are then computed without assuming that the bank chooses a level of capitalization that minimizes cost we find evidence of substantial scale economies and that bank managers are risk averse and use the level of financial capital to signal the level of risk

the impact of underwriting and dealing on bank returns and risks abstract this study uses portfolio theory to investigate empirically the potential for diversification gains from expanded bank securities powers diversification potential is examined using microeconomic data on returns to existing bank securities and non securities activities over 1976 through 1985 both the mean and standard deviation of returns to securities activities are found to be greater than those of non securities activities some potential for diversification gains is found although this appears to be quite limited experiments designed to estimate the effect of using industry and time aggregated data are performed

technical change organizational form and the structure of bank production of those technological characteristics related to the nature of competition among firms in an industry or market scale economies and technical change are especially important economies of scale are said to exist when an equiproportional increase in all inputs results in a greater than proportional increase in output or equivalently when an increase in output at constant input prices leads to a less than proportional increase in total costs thus average costs decline as output expands depending upon the extent to which costs decline as output increases regulation of the firms in the industry may be necessary l the literature analyzing scale economies in commercial banking is voluminous the early studies on scale economies in banking include those by benston 1965 1972 greenbaum 1967 murphy 1972 and bell and murphy 1968 more recent studies include those by benston hanweck and humphrey 1982 and clark 1984 2 this literature has established that mild scale economies exist in bank

technical scale and allocative efficiencies in u s banking an empirical investigation a nonparametric frontier approach is used to calculate the overall technical pure technical allocative and scale efficiencies for a sample of 322 independent banks the sample was drawn from the federal deposit insurance corporation tapes on the reports of condition and reports of income call reports for the year 1986 the results indicated a low level of overall efficiency the main source of inefficiency was technical in nature rather than allocative separate efficiency frontiers were constructed to test the effect of branching however the distributions of efficiency measures for branching and non branching banks were not found to be different

the productivity effects of bank mergers evidence from the uk building societies abstract this paper presents an empirical investigation of the impact of acquisition activity on financial intermediary productivity specifically it uses an augmented production function approach to investigate the impact of acquisition after controls for input changes the model is estimated on an unbalanced panel of 93 uk building societies over the period 1981 1993 using data on their core financial intermediation activities which it is suggested are particularly appropriate for our purposes in contrast to much of the existing merger literature which for the most part uses financial performance data our results do indicate significant and substantial productivity gains following acquisition these are consistent with an acquisitions process in which less efficient firms are acquired and reorganized the post merger gains appear to increase substantially in the post deregulation period when pressures to minimize cost are widely considered to have increased

short run cost inefficiency of commercial banks a flexible stochastic frontier approach we adopt the intermediation approach and use a flexible stochastic frontier to examine the cost efficiency of united states commercial banks with total assets in excess of million we find an average overall inefficiency of just under 10 percent a level somewhat lower than found in previous work our analysis of intra industry variation concludes that inefficiency generally rises with bank size further banks that have branching networks either domestic or foreign have higher inefficiency on average but at the same time inefficiency falls as the number of offices in the branch network expands state level data on the ease of serviceing the market competition from savings institutions and the financial sophistication of depositors significantly affect bank inefficiency generally with the expected signs finally our findings suggest that regulatory changes that increase capital requirements may lead to increased bank efficiency in the short run copyright 1994 by ohio state university press

megamergers and expanded scope theories of bank size and activity diversity we point to the vast empirical literature in banking to argue that the current expansion of scale and scope in banking represents a puzzle we then present two explanations that help us to understand why banks are getting bigger and doing more our explanations suggest that banks may be doing this to increase their shareholders wealth and or merely to enhance the reputation of their management ceos the latter could lead to herd behavior involving banks that increase size and scope despite a dissipation of shareholders wealth alternatively increasing size and scope may oaer strategic benefits and hence increase shareholder wealth in an environment with suacient profitability in current operations and substantial uncertainty about future core competencies we explore conditions under which either one of these competing explanations may dominate 1999 elsevier science b v all rights reserved

nontraditional activities and the efficiency of us commercial banks abstract in recent years an increasing portion of bank income has been generated through nontraditional activities most studies of bank efficiency do not include any measure of nontraditional activities when measuring outputs in this paper cost revenue and profit efficiency are estimated by using models with and without nontraditional output the results suggest that the standard model which omits nontraditional output understates bank efficiency evidence also surfaces that based on efficiency the relative ranking of individual banks changes when nontraditional activities are included as a type of output

the efficiency effects of a single market for financial services in europe abstract this paper examines the potential efficiency effects of a single market for financial services in europe the topics covered include universal banking the merger and acquisition process itself cross border ownership and management of financial institutions and the effects of consolidation of financial institutions on the supply of relationship lending services to informationally opaque small businesses the research reviewed here suggests that the creation of a single market for the european financial services industry is not likely to bring about strong efficiency gains and that cross border efficiency barriers may prevent the single market from becoming a reality

efficiency in the savings and loan industry abstract the stochastic econometric cost frontier approach is modified to investigate efficiency in mutual and stock s ls using 1991 data on u s s ls this methodology allows both the cost frontier and error structures to differ between s ls of these two ownership forms a likelihood ratio test indicates that the data support this unrestricted model which implies efficient mutual and stock s ls use different production technologies various measures of inefficiency show that on average stock s ls are less efficient than mutual s ls the second part of the article relates the inefficiency measures to several correlates

mergers and technical efficiency in spanish savings banks a stochastic distance function approach abstract the aim of this paper is to test the temporal variation of technical efficiency of spanish savings banks during the period 1985 1998 furthermore we test whether merged and non merged firms have different levels and temporal patterns of technical efficiency a stochastic output distance function r w shephard theory of cost and production functions princeton university press princeton nj is employed to accommodate multiple output technology the distance function provides the advantage that it does not need information about prices so it can accommodate the multi product nature of the financial sector only using the quantities as data an important point when the assumptions about perfectly competitive markets are unlikely to be met the temporal variation of efficiency is modeled extending the battese and coelli journal of productivity analysis 3 1992 153 169 approach in two ways relaxing the monotonicity of the temporal variation pattern of the efficiency term and allowing for different patterns of efficiency change between merged and non merged firms

evaluating the cost efficiency of the italian banking system what can be learned from the joint application of parametric and non parametric techniques abstract research on bank efficiency has developed in two separate streams econometric studies and data envelopment analysis a linear programming technique these two branches of literature have developed quickly but separately in this paper these two approaches have been tested on a common panel of 270 italian banks and this has suggested the following i econometric and linear programming results do not differ dramatically when based on the same data and conceptual framework ii when differences arise they can be explained by going back to the intrinsic features of the models moreover some findings on italian banks may be of interest also to the international reader i efficiency scores show a high variance ii the banking system is split in two between northern and southern banks iii there is a direct rather than inverse relationship between productive efficiency and asset quality iv the efficiency of italian banks did not increase over the period 1988 1992

a note on the societal benefits of illiquid bonds kocherlakota 2003 provides an example of a monetary economy where efficiency is enhanced with the introduction of a nominally risk free bond that is specifically designed to be illiquid the societal benefit of an illiquid bond in his example however is transitory and he does not characterize an optimal policy i use an analytically tractable framework to characterize an optimal intervention and to show that the purported benefits of an illiquid bond market persist in a steady state kocherlakota 2003 a donne un exemple d une economie monetaire ou l efficacite est accrue par l introduction d une debenture nominalement sans risque destinee specifiquement aetre illiquide l avantage societal d une debenture illiquide dans son exemple est cependant transitoire et l auteur ne definit pas une politique optimale on utilise un cadre de reference analytiquement soluble pour caracteriser une intervention optimale et pour montrer que les avantages attendus d une debenture illiquide persistent en regime permanent

government borrowing using bonds with randomly determined returns welfare improving randomization in the context of deficit finance abstract we study the problem of a government that wishes to share optimally the burden of deficit finance among agents with differential access to investment opportunities in the presence of private information it is pareto efficient for the government to borrow in a way that amounts to non linear taxation and it must treat agents with access to the best investment opportunities preferentially to keep them in the bond market in addition with private information about access to assets it is often desirable to randomize extraneously the return on the highest yielding government liabilities the optimal government policy is shown to accord well with historical observations and provides insight into why explicit randomization is not often observed in private contracts

technical progress inefficiency and productivity change in u s banking 1984 1993 studies often find that on average u s commercial banks are quite inefficient and the authors find that banks became more technically inefficient between 1984 and 1993 from a new decomposition of the malmquist productivity index into changes in pure technical and scale efficiency as well as both pure technical changes and changes in scale of technology they find that much of the inefficiency increase can be attributed to the general failure of banks to adopt technological improvements made by a few banks that advanced the efficient frontier small banks experienced especially large decreases in both efficiency and productivity

efficiency and technical progress in banking empirical results for a panel of german cooperative banks abstract using 1989 1992 individual data of 757 german cooperative banks and applying the intermediation approach we specify a multi product translog cost function for this part of the german banking industry for all size classes moderate economies of scale can be identified there is also evidence of economies of scope which supports the notion of universal banking as for cost efficiency we find that the average banks in all size classes deviate considerably from the best practice cost frontier all banks enjoy growth of total factor productivity which is higher for the smaller banks in the sample

explaining efficiency differences among large german and austrian banks cost efficiency scale efficiency and productivity change are estimated by data envelopment analysis and cost efficiency is regressed on explanatory variables no evidence is found for average productivity responding to deregulation over the period studied state owned banks are found to be more cost efficient likely owing to cheaper funds and cooperative banks to be about as cost efficient as private banks increasing economies of scale but decreasing economies of scope provide rationale for m as among banks with similar product portfolios interbank and capital market funding is found to be more cost efficient than deposits when the cost of retail networks is controlled

merger and optimal number of firms an integrated simulation approach in a market where imperfect competition occurs as a result of mergers this study proposes a framework consisting of both efficiency and risk analyses that allow the simulation of pro forma mergers and hence the determination of the optimal number of firms in the industry this is valuable policy information for regulators concerned with possible intervention in the case of competition and anti trust violations and also for business managers seeking acquisition targets the framework is applied to the banking industry in taiwan results reveal the potential for industrial restructuring in a sector where the optimal number of bank holding companies bhcs is between four and six subject to whether partial control is assumed

regulations market structure institutions and the cost of financial intermediation this paper examines the impact of bank regulations market structure and national institutions on bank net interest margins and overhead costs using data on over 1400 banks across 72 countries while controlling for bankspecific characteristics the data indicate that tighter regulations on bank entry and bank activities boost the cost of financial intermediation inflation also exerts a robust positive impact on bank margins and overhead costs while concentration is positively associated with net interest margins this relationship breaksdownwhencontrolling for regulatory impediments to competition and inflation furthermore bank regulations become insignificant when controlling for national indicators of economic freedom or property rights protection while these institutional indicators robustly explain cross bank net interest margins and overhead expenditures thus bank regulations cannot be viewed in isolation they reflect broad national approaches to private property and competition

a theory of value with non linear prices equilibrium analysis beyond vector lattices this paper presents a new theory of value with a personalized pricing system that naturally induces a family of non linear prices this affords a coordinate free theory of value in which the analysis is without any lattice theoretic considerations when commodity bundles are perfectly decomposable the generalized prices become linear and the analysis specializes to the walrasian model this happens for instance whenever the commodity space is a vector lattice and consumption sets coincide with the positive cone our approach affords theorems on the existence of equilibrium and provides a value based characterization of pareto optimality and edgeworth equilibrium where the walrasian linear price based characterization fails the analysis has applications in the finite as well as the infinite dimensional setting journal of economic literature classification numbers c62 c71 d46 d51 d61

price discriminating monetary policy a nonuniform pricing approach abstract this paper establishes that a version of the bryant and wallace 1984 price discrimination analysis of monetary policy can be viewed as a special case of the spence 1977 nonuniform pricing model to this end a general equilibrium model is constructed with heterogeneous agents and a government that faces an informational restriction the government must finance an exogenously determined stationary deficit by issuing bonds or currency with quantity dependent prices in addition to generalizing the bryant and wallace model the analysis accomplishes the following i the informational restriction helps justify the ruling out of lumpsum taxation a crucial assumption of the bryant and wallace model and ii the analysis provides insight into nonuniform pricing in a simple general equilibrium model with heterogeneous agents

malmquist type indices in the presence of negative data an application to bank branches in this paper we develop an index and an indicator of productivity change that can be used with negative data for that purpose the range directional model rdm a particular case of the directional distance function is used for computing efficiency in the presence of negative data we use rdm efficiency measures to arrive at a malmquist type index which can reflect productivity change and we use rdm inefficiency measures to arrive at a luenberger productivity indicator and relate the two the productivity index and indicator are developed relative to a fixed meta technology and so they are referred to as a meta malmquist index and meta luenberger indicator we also address the fact that vrs technologies are used for computing the productivity index and indicator a requirement under negative data which raises issues relating to the interpretability of the index we illustrate how the meta malmquist index can be used not only for comparing the performance of a unit in two time periods but also for comparing the performance of two different units at the same or different time periods the proposed approach is then applied to a sample of bank branches where negative data were involved the paper shows how the approach yields information from a variety of perspectives on performance which management can use

efficiency in the commercial banking industry a production frontier approach 1990 efficiency in the commercial banking industry a production frontier approach applied economics vol 22 no 4 pp 539 551

optimum taxation with errors in administration abstract the paper compares the welfare levels which can be achieved by two distinct tax regimes lump sum taxation where one attempts to identify individuals and allocate transfers or subsidies on the basis of characteristics and income taxation where characteristics are not observed but personal incomes are measured and taxed where there are no errors in classifying individuals lump sum taxation is superior but where mistakes are made in the allocation of lump sum grants or subsidies income taxation may be more attractive the level of errors where the regimes are equally desirable in terms of social welfare is computed in simple models following that of feldstein 1973 where there is strong aversion to inequality then income taxation becomes preferable at quite small errors in analysing income taxation it is shown that in the feldstein model with endogenous wages the marginal tax rate in optimum income taxation on the more skilled is negative and that on the less skilled is positive in contrast to the standard results see seade 1977 with exogenous wages

measuring cost efficiency in the property liability insurance industry abstract escalating prices and periodic availability problems in property liability insurance markets are often attributed to insurance company inefficiency and lax claims settlement practices this paper investigates these issues by estimating stochastic cost frontiers for three size stratified samples of property liability insurers over the period 1980 1988 a translog cost function and input share equations are estimated using maximum likelihood techniques the results show that large insurers operate in a narrow range around an average efficiency level of about 90 percent relative to their cost frontier efficiency levels for medium and small insurers are about 80 and 88 percent in relation to their respective frontiers wider variations in efficiency are present for these two groups in comparison with large insurers large insurers slightly over produce loss settlement services while small and medium size insurers under produce this output the small and intermediate size groups are characterized by economies of scale suggesting the potential for cost reductions from consolidations in the industry

bidder returns in bancassurance mergers is there evidence of synergy abstract we provide evidence on the potential for bidder wealth gains in bancassurance mergers by examining a sample of such mergers in the united states and abroad these combinations are expected to produce positive wealth gains if there are synergies between these two types of financial firms we find positive bidder wealth effects that are significantly related to economies of scale as measured by the size of the target relative to the bidder potential economies of scope and the locations of the bidders and targets these results suggest that the bancassurance architectural structure for financial firms does offer some benefits and thus may become more prominent in future years

self selection and pareto efficient taxation abstract this paper analyses the set of pareto efficient tax structures the formulation of the problem as one of self selection not only shows more clearly the similarity between this problem and a number of other problems such as the optimal pricing of a monopolist which have recently been the subject of extensive research but also allows the derivation of a number of new results we establish i under fairly weak conditions randomization of tax structures is desirable ii if different individuals are not perfect substitutes for one another in production then the general equilibrium effects until now largely ignored in the literature of changes in the tax structure may be dominant in determining the optimal tax structure in particular if the relative wage of high ability and low ability individuals depends on the relative supplies of labor the optimal tax structure entails a negative marginal tax rate on the high ability individuals and a positive marginal tax rate on the low ability individuals the marnitude of which depends on the elasticity of substitution iii if individuals differ in their preferences pareto efficient taxation may entail negative marginal tax rates for high incomes while iv if wage income is stochastic the marginal tax rate at the upper end may be 100 our analysis thus makes clear that the main qualitative properties of the optimal tax structure to which earlier studies called attention are not robust to these attempts to make the theory more realistic