scholarly journals The cost efficiency of Vietnamese banks – the difference between DEA and SFA

2020 ◽  
Vol 22 (2) ◽  
pp. 209-227
Author(s):  
Phong Hoang Nguyen ◽  
Duyen Thi Bich Pham
Keyword(s):  
Cost Efficiency ◽  
Stochastic Frontier Analysis ◽  
Random Noise ◽  
Stochastic Frontier ◽  
Time Consistency ◽  
Efficiency Frontier ◽  
Content Type ◽  
Frontier Analysis ◽  
The Difference ◽  
The Cost

PurposeThe paper aims to enrich previous findings for an emerging banking industry such as Vietnam, reporting the difference between the parametric and nonparametric methods when measuring cost efficiency. The purpose of the study is to assess the consistency in issuing policies to improve the cost efficiency of Vietnamese commercial banks.Design/methodology/approachThe cost efficiency of banks is assessed through the data envelopment analysis (DEA) and the stochastic frontier analysis (SFA). Next, five tests are conducted in succession to analyze the differences in cost efficiency measured by these two methods, including the distribution, the rankings, the identification of the best and worst banks, the time consistency and the determinants of efficiency frontier. The data are collected from the annual financial statements of Vietnamese banks during 2005–2017.FindingsThe results show that the cost efficiency obtained under the SFA models is more consistent than under the DEA models. However, the DEA-based efficiency scores are more similar in ranking order and stability over time. The inconsistency in efficiency characteristics under two different methods reminds policy makers and bank administrators to compare and select the appropriate efficiency frontier measure for each stage and specific economic conditions.Originality/valueThis paper shows the need to control for heterogeneity over banking groups and time as well as for random noise and outliers when measuring the cost efficiency.

Measuring efficiency of Vietnamese banks

2017 ◽  
Vol 29 (2) ◽  
pp. 171-182 ◽  
Author(s):  
Thanh Ngo ◽  
David Tripe
Keyword(s):  
Cost Efficiency ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Control Variable ◽  
Banking System ◽  
Alternative Methods ◽  
Content Type ◽  
Frontier Analysis ◽  
Using Data ◽  
The Cost

Purpose This paper aims to examine alternative methods for treating nonperforming loans (NPLs) in bank cost-efficiency studies using stochastic frontier analysis (SFA). Design/methodology/approach The authors consider three methods of treating NPLs in SFA: as an additional control variable, as an environmental factor or as a deduction from total loans. Using data from the Vietnamese banking system (2003-2010), the authors then compare these results with those of the base model (where total loans is used regardless of the NPLs) to see which one is more appropriate for this study. Findings The authors observed that the first two methods are inappropriate for the analysis: one cannot find the significant relationship between NPLs and the banks’ total cost, and the other cannot account for any inefficiency at all. The authors suggested that the third method of separating NPLs from total loans can provide better insights. Using the proposed method, the authors showed that the cost-efficiency of Vietnamese banks over the period examined was moderate with a slight decreasing trend. When NPLs are separated, the cost-efficiency decreases in state-owned banks and big banks, whereas it increases in small and private banks. Research limitations/implications Research is limited to Vietnamese banks during a certain period, and it would be useful to apply the same technique to other data sets. Practical implications The paper suggests a new approach to account for NPLs in cost SFA studies in banking. Originality/value The paper provides a much more searching analysis of NPLs in banking than has generally been seen in previous research.

Impact of financial liquidity and solvency on cost efficiency: evidence from US banking system

2020 ◽  
Vol 37 (2) ◽  
pp. 391-410
Author(s):  
Kekoura Sakouvogui ◽  
Saleem Shaik
Keyword(s):  
Financial Crisis ◽  
Cost Efficiency ◽  
Stochastic Frontier Analysis ◽  
Banking System ◽  
Tobit Regression ◽  
Content Type ◽  
Frontier Analysis ◽  
Financial Liquidity ◽  
Domestic Banks ◽  
The Cost

Purpose The purpose of this paper is to evaluate the importance of financial liquidity and solvency on US commercial and domestic banks’ cost efficiency while accounting for internal and external factors. Design/methodology/approach The Stochastic Frontier Analysis and Data Envelopment Analysis estimators are used to estimate the cost efficiency of 11,044  US commercial and domestic banks from 2005 to 2017. Using Tobit regression model, the importance of financial liquidity and solvency on cost efficiency is examined. Findings The results provide evidence that the financial liquidity and solvency negatively impact the cost efficiency of US commercial and domestic banks. Overall, US commercial and domestic banks were inefficient during the financial crisis in comparison to the tranquil period. The importance of financial solvency on the cost efficiency was not statistically significant, while the financial liquidity negatively collapsed because of contagion. Finally, the results provide evidence that the amount of total assets matters in the improvement of the cost efficiency. Originality/value This paper estimates and identifies the 2007-2009 financial crisis with liquidity, solvency or both financial factors.

scholarly journals The Cost Efficiency of the Brazilian Electricity Distribution Utilities: A Comparison of Bayesian SFA and DEA Models

2010 ◽  
Vol 2010 ◽  
pp. 1-20 ◽  
Author(s):  
Marcus Vinicius Pereira de Souza ◽  
Madiagne Diallo ◽  
Reinaldo Castro Souza ◽  
Tara Keshar Nanda Baidya
Keyword(s):  
Cost Efficiency ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Fundamental Aspect ◽  
Data Envelopment ◽  
Electricity Distribution ◽  
Frontier Analysis ◽  
Dea Models ◽  
The Cost ◽  
Analysis Models

The purpose of this study is to evaluate the efficiency indices for 60 Brazilian electricity distribution utilities. These scores are obtained by DEA (Data Envelopment Analysis) and Bayesian Stochastic Frontier Analysis models, two techniques that can reduce the information asymmetry and improve the regulator's skill to compare the performance of the utilities, a fundamental aspect in incentive regulation schemes. In addition, this paper also addresses the problem of identifying outliers and influential observations in deterministic nonparametric DEA models.

Stochastic cost frontier analysis – a sensitivity analysis on cost measures

2016 ◽  
Vol 28 (4) ◽  
pp. 401-410 ◽  
Author(s):  
Thanh Ngo ◽  
David Tripe
Keyword(s):  
New Zealand ◽  
Cost Efficiency ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Banking System ◽  
Alternative Methods ◽  
Data Sets ◽  
Content Type ◽  
Frontier Analysis ◽  
Cost Frontier

Purpose This paper aims to examine alternative methods for recording and treating costs in studies of bank efficiency. Design/methodology/approach This study used stochastic frontier analysis (SFA) models with core costs and total costs to estimate the cost efficiency of banks in two different economies, Vietnam where the banking system is under-developed (and thus is dominated by traditional banking activities) and New Zealand where the banking system is well-developed (and thus non-traditional banking activities play an important role). Findings The authors found that models using total cost tend to underestimate the banks’ cost efficiency. This underestimation relates to the extent of modern activities in a banking system: it is larger in an advanced banking system (i.e. New Zealand) and smaller in a less-developed banking system (i.e. Vietnam). Research limitations/implications Research is limited to two countries, and it would be useful to apply the same technique to other data sets. Practical implications The paper suggests a new approach to cost SFA studies in banking. Originality/value The paper provides a much more searching analysis of costs in banking than has generally been seen in previous research.

scholarly journals THE EFFECTS OF COMPETITION ON EFFICIENCY: THE VIETNAMESE BANKING INDUSTRY EXPERIENCE

2017 ◽  
pp. 1-30 ◽  
Author(s):  
THANH PHAM THIEN NGUYEN ◽  
SON HONG NGHIEM
Keyword(s):  
Cost Efficiency ◽  
Banking Sector ◽  
Stochastic Frontier Analysis ◽  
Global Financial Crisis ◽  
Stochastic Frontier ◽  
Bank Efficiency ◽  
Frontier Analysis ◽  
The Cost ◽  
Efficiency Effects ◽  
Industry Experience

Given considerable changes in the Vietnamese banking environment brought about by significant reforms towards liberalization during the last two decades, this study investigates the evolution of competition and efficiency, compares the competition and efficiency of state-owned banks to joint-stock banks, and then tests the “quiet life” hypothesis in this industry over the period 2000–2014. This study employs the efficiency-adjusted Lerner index (i.e., market power) to capture competition, and the cost efficiency estimated by a Fourier-flexible function stochastic frontier analysis (SFA) to capture bank efficiency. This study firstly finds a slight improvement of competition and cost efficiency in the Vietnamese banking sector over the analysis period. Secondly, there are no significant differences in competition and cost efficiency level between state-owned and joint-stock banks. Thirdly, a positive causality running from competition to cost efficiency is documented, providing evidence of supporting the “quiet life” hypothesis. Finally, positive efficiency effects of the banks’ capital ratio and size are found, while insignificant impacts of the growth of GDP per capita and 2007 global financial crisis were observed. The results are strongly robust to a variety of tests. The findings suggest pro-competition, pro-capitalization and pro-size expansion policies in the Vietnamese banking sector if targeting at improving the cost efficiency of Vietnamese banks.

A comparative approach of stochastic frontier analysis and data envelopment analysis estimators: evidence from banking system

2020 ◽  
Vol 47 (7) ◽  
pp. 1787-1810
Author(s):  
Kekoura Sakouvogui
Keyword(s):  
Data Envelopment Analysis ◽  
Cost Efficiency ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Data Envelopment ◽  
Content Type ◽  
Frontier Analysis ◽  
Efficiency Measures ◽  
Clustering Approach ◽  
Over Time

PurposeThe consistency of stochastic frontier analysis (SFA) and data envelopment analysis (DEA) cost efficiency measures using a sample of 650 commercial and domestic banks in the United States is investigated based on cluster analysis while accounting for the yearly variation in banks.Design/methodology/approachDue to the importance of efficiency measures for policy and managerial decision-making, the cost efficiency measures of SFA and DEA estimators are examined according to four criteria: levels, rankings, stability over time and stability over clustering groups. In this paper, we present two clustering methods, Gap Statistic and Dindex, that involve SFA and DEA cost efficiency measures. The clustering approach creates homogeneous groups of banks offering a similar mix of efficiency levels. Hence, each evaluated bank knows the cluster to which it belongs. Furthermore, this paper provides nonparametric statistical tests of SFA and DEA cost efficiency measures estimated with and without a clustering approach.FindingsThe results suggest that the clustering approach plays a considerable role in the rankings of US banks. Furthermore, the average SFA and DEA cost efficiency measures over time of the homogeneous US banks are substantially higher than those of the heterogeneous US banks.Originality/valueThis research is the first to provide comparative efficiency measures needed for desirable policy conclusions of heterogeneous and homogeneous US banks.

U.S. highway public private partnerships

2014 ◽  
Vol 40 (11) ◽  
pp. 1131-1151 ◽  
Author(s):  
Nobuhiko Daito ◽  
Jonathan L. Gifford
Keyword(s):  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Public Private Partnerships ◽  
Highway Projects ◽  
Content Type ◽  
Frontier Analysis ◽  
Cost Differential ◽  
Significant Difference ◽  
The Usa ◽  
The Difference

Purpose – The use of public-private partnerships (P3s) for infrastructure delivery, particularly for highway projects, has been increasing in the USA. The purpose of this paper is to empirically evaluate the difference of P3s and non-P3 highway projects, in terms of their costs and efficiency. Design/methodology/approach – An empirical model of highway construction costs was estimated using a linear regression model that explicitly accounts for the cost differential between the contracts. The differences between efficiencies was also evaluated through a two-stage analysis, where projects’-specific technical efficiencies were first estimated using stochastic frontier analysis and data envelopment analysis, and then the difference in technical efficiencies between the two groups were evaluated through non-parametric tests of means. Findings – Controlling for various project characteristics, the P3 highway projects in the USA showed higher initial costs than non-P3 projects. However, the efficiency scores showed no significant difference between the two groups. This inconsistency between initial costs and technical efficiency scores suggests the complexity involved in P3 projects, which are not captured in the efficiency analysis. Research limitations/implications – Limited availability of P3 project data due to their immaturity (in cases of P3 projects that include operation and management) and their complex engineering specifications may have caused biased results. Importantly, the study analyzed project costs as of financial close; post-financial close variations, such as change orders during construction, cost/schedule overruns, and renegotiation of contract terms, are beyond the scope of the analysis in this study. Originality/value – The present study contributes to the literature as one of the earliest empirical analyses of the performance of highway P3s in the USA. Also, this is one of the first studies to employ frontier analysis methods that focus on the efficiency of highway project delivery.

scholarly journals Evaluating Bank Cost Efficiency Using Stochastic Frontier Analysis

2019 ◽  
Vol 11 (3(J)) ◽  
pp. 48-57
Author(s):  
Sanderson Abel ◽  
Alex Bara ◽  
Pierre Le Roux
Keyword(s):  
Interest Rates ◽  
Cost Efficiency ◽  
Commercial Banks ◽  
Banking Sector ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Banking System ◽  
Frontier Analysis ◽  
Doing Business ◽  
The Cost

The study seeks to assess the cost efficiency of the commercial banks in Zimbabwe using the stochastic frontier analysis. The cost efficiency of the Zimbabwean banks is estimated using the trans-log stochastic frontier approach. The Stochastic Frontier Analysis methodology is among the host of methods that has been used to measure banking sector efficiency. The analysis of cost efficiency of commercial banks has important implications for the economy since an efficient banking system has potential to reduce interest rates which can lead to increased investment and growth for the economy. The cost of doing business in Zimbabwe is perceived to be high hence improved bank efficiency has the potential to reduce the cost of doing business. The average cost efficiency scores for the Zimbabwean banks over the study period show that the banking sector in Zimbabwe experiencing 17 percent inefficiency. The efficiency levels have been declining over the years reflecting increased resource wastage in the system. The study recommends that the banking institutions should continue to innovate so as to reduce their inefficiencies.

scholarly journals Regulatory Impact of Bank Performance in Nigeria: Application of Stochastic Frontier Analysis

2017 ◽  
Vol 4 (4) ◽  
pp. 32 ◽  
Author(s):  
Mustapha A. Akinkunmi
Keyword(s):  
Cost Efficiency ◽  
Commercial Banks ◽  
Stochastic Frontier Analysis ◽  
Stochastic Frontier ◽  
Empirical Work ◽  
Frontier Analysis ◽  
Total Cost ◽  
Regulatory Impact ◽  
The Cost ◽  
Input Prices

This study employs a panel dataset on the cost efficiency of Nigerian commercial banks to test the hypothesis whether internal regulation from the monetary authority affects the performance of commercial banks. The empirical work is carried out through the use of stochastic frontier analysis on 14 commercial banks over 10 years. The study finds that regulation has a negative and significant influence on the total cost while bank output, input prices and bank size have a positive and significant effect. This implies that the large the bank size, the higher total cost incurred.

Sign in / Sign up

Export Citation Format

Share Document