Bayesian analysis of dynamic effects in inefficiency: evidence from the Colombian banking sector

Jorge Galan, Helena Veiga and Michael Peter Wiper

DES - Working Papers. Statistics and Econometrics. WS from Universidad Carlos III de Madrid. Departamento de Estadística

Abstract: Firms face a continuous process of technological and environmental changes that implies making managerial decisions in a dynamic context. However, costs and other constraints prevent firms from making instant adjustments towards optimal conditions and may cause inefficiency to be persistent in time. In this work, we propose a flexible dynamic model that makes possible to distinguish persistent effects in the inefficiency from firm inefficiency heterogeneity and to capture differences in the adjustment costs between firms. The new model is fitted to a ten year sample of Colombian banks. Our findings suggest that firm characteristics associated to size and foreign ownership have negative effects on inefficiency and separating these heterogeneity factors from the dynamics of inefficiency improves model fit. On the other hand, acquisitions are found to have positive and persistent effects on inefficiency. Colombian banks are found to present high inefficiency persistence but there exist important differences between institutions. In particular, merged banks present low costs of adjustment that allow them to recover rapidly the efficiency losses derived from merging processes

Keywords: Dynamic; effects; Persistent; shocks; Heterogeneity; Banks; efficiency; Bayesian; inference; Stochastic; frontier; models (search for similar items in EconPapers)
JEL-codes: C11 C22 C23 C51 D24 G21 (search for similar items in EconPapers)
Date: 2013-06
New Economics Papers: this item is included in nep-ban, nep-ecm and nep-eff
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:cte:wsrepe:ws131918

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