Cost and revenue efficiency in Spanish banking: What distributions show

Maria García-Alcober (maria.garcia3@uchceu.es), Emili Tortosa-Ausina, Diego Prior and Manuel Illueca (illueca@cofin.uji.es)

No 2014/12, Working Papers from Economics Department, Universitat Jaume I, Castellón (Spain)

Abstract: The literature analyzing the efficiency of financial institutions has evolved rapidly over the last twenty years. Most research has focused on the input side, analyzing either cost, input technical efficiency or input allocative efficiency, whereas comparatively fewer studies have examined the revenue side. However, both sides are relevant when evaluating banks' performance. This article explicitly explores how serious it may be to confine the analysis to one side of banks' activities only, comparing the efficiencies yielded by either minimizing costs or maximizing revenues. We focus on the Spanish banking sector, which is currently undergoing a profound process of change and restructuring. The application shows how severely biased the analysis is when only a partial efficiency measurement is conducted. It also shows the growing relevance of the issue since the beginning of the financial crisis.

Keywords: bank; cost efficiency; revenue efficiency; kernel smoothing (search for similar items in EconPapers)
JEL-codes: C14 C61 G21 L50 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2014
New Economics Papers: this item is included in nep-ban and nep-eff
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