Dynamic effects in inefficiency: Evidence from the Colombian banking sector

Jorge Galan, Helena Veiga and Michael P. Wiper

European Journal of Operational Research, 2015, vol. 240, issue 2, 562-571

Abstract: Firms face a continuous process of technological and environmental changes that requires them to make managerial decisions in a dynamic context. However, costs and constraints prevent firms from making instant adjustments towards optimal conditions and may cause inefficiency to persist in time. We propose a dynamic inefficiency specification that captures differences in the adjustment costs among firms and non-persistent effects of inefficiency heterogeneity. The model is fitted to a ten year sample of Colombian banks. The new specification improves model fit and have effects on efficiency estimations. Overall, Colombian banks present high inefficiency persistence but important differences between institutions are found. In particular, merged banks present low adjustment costs that allow them to recover rapidly efficiency losses derived from merging processes.

Keywords: Productivity and competitiveness; Banks efficiency; Bayesian inference; Dynamic effects; Heterogeneity (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (38)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:240:y:2015:i:2:p:562-571

DOI: 10.1016/j.ejor.2014.07.005

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