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A geographically weighted approach to measuring efficiency in panel data: The case of US saving banks

Benjamin Tabak (), Rogério Boueri Miranda and Dimas Fazio

Journal of Banking & Finance, 2013, vol. 37, issue 10, 3747-3756

Abstract: This paper discusses a new approach to controlling for the environment when estimating efficiency. In response to the literature on the international comparison of bank efficiency, we draw the attention to a local dimension of comparison. By introducing geographical weights and estimating local frontiers for each US savings bank in the 2001–09 period, we find that the bank technical performance is higher for most banks in comparison to a fixed-effects approach. This result highlights the importance of taking into account the local environment and constraints while analyzing banks’ performance, so as not to consider the factors that are exogenous to these institutions as inefficiencies. Further analysis could improve the weighs calculation by employing other measures of interconnectedness besides geographical distance.

Keywords: Stochastic frontier; Environmental variables; Bank performance; Geographical weights (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2013
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Working Paper: A Geographically Weighted Approach in Measuring Efficiency in Panel Data: the Case of US Saving Banks (2012) Downloads
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Handle: RePEc:eee:jbfina:v:37:y:2013:i:10:p:3747-3756