Deteriorating Cost Efficiency in Commercial Banks Signals an Increasing Risk of Failure

Anca Pruteanu-Podpiera and Jiri Podpiera

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: While it is generally consented that management quality is often the key determinant of banks' success in a risky world, somewhat paradoxically early warning systems are mainly built on financial ratios driving management quality assessment to the periphery. In this paper we show, using estimated cost efficiency scores for the Czech banking sector, that cost inefficient management was a predictor of bank failures during the years of banking sector consolidation, and thus suggest the inclusion of cost efficiency in early warning systems.

Keywords: Bank failure; cost efficiency; stochastic frontier; hazard model. (search for similar items in EconPapers)
JEL-codes: E58 J21 J28 (search for similar items in EconPapers)
Date: 2005-12
New Economics Papers: this item is included in nep-cfn, nep-eff, nep-fmk, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:cnb:wpaper:2005/06

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