 The informativeness of stochastic frontier and programming frontier efficiency scores: Cost efficiency and other measures of bank holding company performanceRobert Eisenbeis (), Gary Ferrier and Simon Kwan No 99-23, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta Abstract: This paper examines the properties of the X-inefficiencies in U.S. bank holding companies derived from both stochastic and linear programming frontiers. This examination allows the robustness of results across methods to be compared. While we find that calculated programming inefficiency scores are two to three times larger than those estimated using a stochastic frontier, the patterns of the scores across banks and time are similar, and there is a relatively high correlation of the rankings of banks' efficiencies under the two methods. However, when we examine the \"informativeness\" of the efficiency measured by the two different techniques, we find some large differences. We find evidence that the stochastic frontier scores are more closely related to risk-taking behavior, managerial competence, and bank stock returns. Based on these findings, we conclude that while both methods produce informative efficiency scores, for this data set decision makers should put more weight on the stochastic frontier efficiency estimates. Keywords: Bank holding companies; Banks and banking - Costs (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:fip:fedawp:99-23 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta Contact information at EDIRC. |
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