Profit efficiency of U.S. commercial banks: a decomposition

Diego Restrepo-Tobon () and Subal Kumbhakar

No 10939, Documentos de Trabajo de Valor Público from Universidad EAFIT

Abstract: This paper presents new evidence regarding the relation between profit, revenue, and cost efficiencies of U.S. commercial banks. Building on the widely used nonstandard profit function (NSPF) approach, we show (i) why estimation of NSPF would be wrong and (ii) how revenue and cost efficiencies contribute to profit efficiency. Using data from U.S. comercial banks from 2001 to 2010, we find that losses due to profit inefficiency represents about 8.2% of banks’ equity of which 3.5% is due to revenue inefficiency and 4.7% to cost inefficiency. Cost efficiency weighs more than revenue efficiency in estimated profit efficiency. However, compared with cost inefficiency, revenue inefficiency affects more overall profitability.

Keywords: Profit Efficiency; Revenue efficiency; Cost efficiency; Nonstandard Profit Function; Stochastic Frontier (search for similar items in EconPapers)
JEL-codes: D24 G21 L13 (search for similar items in EconPapers)
Pages: 36
Date: 2013-08-05
New Economics Papers: this item is included in nep-ban and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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