Measuring Profit Efficiency of Colombian Banks: A Composite Nonstandard Profit Function Approach

Diego Restrepo-Tobon () and Jim Sanchez-Gonzalez ()

No 16789, Documentos de Trabajo de Valor Público from Universidad EAFIT

Abstract: We analyze the profit efficiency of the Colombian banking industry during theperiod 2001 - 2013. Unlike previous studies, we estimate revenue and cost efficiencyseparately and then compute profit efficiency as a composite measure of both costand revenue efficiency. This approach overcomes the mis-specification problems ofthe traditional nonstandard profit function approach used in most of the literatureregarding profit efficiency. We find that profit efficiency improved during the periodunder analysis mainly because gains in revenue efficiency. In addition, and in contrastwith previous studies but in line with economic intuition, we find that while revenue andcost efficiency tend to be negatively correlated, each correlates positively with profitefficiency. Thus, improving either revenue efficiency or cost efficiency has a positiveimpact on profit efficiency.

Keywords: Profit Efficiency; Revenue Efficiency; Cost Efficiency; Nonstandard Profit Function; Stochastic Frontier (search for similar items in EconPapers)
JEL-codes: D24 G21 G34 L13 (search for similar items in EconPapers)
Pages: 21
Date: 2018-08-27
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-eff
References: View references in EconPapers View complete reference list from CitEc
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Downloads: (external link)
http://hdl.handle.net/10784/12965

Related works:
Journal Article: Measuring profit efficiency of Colombian banks: a composite non-standard profit function approach (2021)
Working Paper: Measuring Profit Efficiency of Colombian Banks: A Composite Nonstandard Profit Function Approach (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:col:000122:016789

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