COMPARATIVE EFFICIENCY BETWEEN COOPERATIVE, SAVINGS AND COMMERCIAL BANKS IN EUROPE USING THE FRONTIER APPROACH

Mikko Mäkinen and Derek Jones

Annals of Public and Cooperative Economics, 2015, vol. 86, issue 3, 401-420

Abstract: We test competing hypotheses concerning the comparative behavior of shareholder-owned commercial banks and stakeholder-orientated cooperative and savings banks in European banking. One hypothesis is that the risk culture and business models of stakeholder and shareholder-owned banks have become more alike and so cost efficiency has converged between bank ownership structures. The alternative hypothesis suggests that institutional differences do matter and lead, amongst other things, to variation in network effects and monitoring mechanisms producing differing behaviors and efficiency outcomes. By using a novel panel data set of 521 European banks during 1994-2010, we find: (i) mean inefficiency scores vary by ownership type and are lower for cooperative banks than for commercial and savings banks; (ii) there is a large variation in inefficiency scores among banks within each ownership type but the lower variance for cooperative banks indicates that they are the most homogeneous group; (iii) the inefficiency distribution of savings and commercial banks appear to arise from the same distribution, but this does not hold for cooperative banks. As such our findings are more consistent with the alternative hypothesis. Our first two findings buttress those studies that found significant differences between European banks with differing ownership structures, while our third finding on the significance of the cycle to the distribution of inefficiency is novel.

Date: 2015
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