A Multiproduct Cost Study of Savings and Loans

Loretta Mester

Journal of Finance, 1987, vol. 42, issue 2, 423-45

Abstract: This paper investigates the cost structure of savings and loans. Most studies of financial institutions failed to take into account their multiproduct nature. Using the multiproduct approach, the existence of subadditivity, multi-product global and product- specific economies of scale and scope, and substitutability between inputs is investigated. A translogarithmic cost function is estimated using 1982 data on California savings and loans. Restrictive func- tional forms also estimated are rejected. Standard errors for the statistics calculated are estimated and various statistical tests are conducted. Previous authors have not calculated standard errors for these statistics. No evidence of subadditivity in the industry is found. Copyright 1987 by American Finance Association.

Date: 1987
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