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Book part
Publication date: 6 December 2007

Ila Semenick Alam and Gerald Granderson

This chapter investigates whether signing more hospital contracts with Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs), hospital…

Abstract

This chapter investigates whether signing more hospital contracts with Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs), hospital affiliation in a system, having more system hospital members located in the same area, and increased competition from area hospitals, contributes to improvements in the cost efficiency of U.S. Midwestern hospitals. Hospitals may offer HMOs and PPOs discounts on contracts to provide health care services to firm employees enrolled in HMOs and PPOs (discounts would lead to smaller price mark-ups over costs for hospital services). Enacting policies to enhance cost efficiency may help hospitals maintain a specified level of profits.

Details

Evaluating Hospital Policy and Performance: Contributions from Hospital Policy and Productivity Research
Type: Book
ISBN: 978-0-7623-1453-9

Open Access
Article
Publication date: 6 May 2020

Phong Hoang Nguyen and Duyen Thi Bich Pham

The paper aims to enrich previous findings for an emerging banking industry such as Vietnam, reporting the difference between the parametric and nonparametric methods when…

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Abstract

Purpose

The 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/approach

The 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.

Findings

The 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/value

This 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.

Details

Journal of Economics and Development, vol. 22 no. 2
Type: Research Article
ISSN: 1859-0020

Keywords

Article
Publication date: 4 July 2016

Gregory J McKee and Albert Kagan

The purpose of this paper is to assess product and service arrays of community banks within competitive markets that are impacted by varying sized financial institutions…

Abstract

Purpose

The purpose of this paper is to assess product and service arrays of community banks within competitive markets that are impacted by varying sized financial institutions. A cost efficiency model is used to understand the relationship of product offerings and business cycle response upon bank performance.

Design/methodology/approach

A cost efficiency model is used to understand the relationship of product offerings and business cycle response upon bank performance. Markets comprised of alternate size and type of financial institutions are compared.

Findings

Greater values of X_EFF i when institutions compete are observed in this analysis. Cost efficiency is lowest when community banks are the only institution in the market, and second lowest when credit unions are the only competing institutions. Call report data are analyzed from 1994 to 2013. The number of big banks increases community bank efficiency and efficiency of large banks. Also, the number of community banks does affect big bank cost efficiency. The magnitude of the effect pertaining to the number of community banks upon big bank efficiency is much smaller than that of the number of big banks on community bank efficiency.

Originality/value

This study considers cost efficiency and profitability as measures of institution on the performance of a competing institutional type. The modeling approach uses cost efficiency as a method of observing the performance of financial institutions and an explanation of how firms persist, grow, and respond to changes in technology or regulation. The effects of the presence of each type of financial institution on the performance of another type are compared. Situations in which any number of one or more institutional types is present in a market are considered for analysis purposes.

Details

International Journal of Bank Marketing, vol. 34 no. 5
Type: Research Article
ISSN: 0265-2323

Keywords

Article
Publication date: 4 December 2017

Busayo Bidemi Adeyemi, Victor Olusegun Okoruwa and Adesola Ikudaisi

The purpose of this paper is to assess the efficiency of rice millers and determine factors influencing cost efficiency in Southwest Nigeria using the cost route approach.

Abstract

Purpose

The purpose of this paper is to assess the efficiency of rice millers and determine factors influencing cost efficiency in Southwest Nigeria using the cost route approach.

Design/methodology/approach

The paper analyses cost efficiency of rice millers using primary data collected from 62 respondents through a structured questionnaire. A multi-stage sampling procedure was employed for this purpose. The profile of rice millers and mills were derived using the descriptive analysis. Cost efficiency of the millers was obtained using the quadratic cost function analysis, and Tobit regression was used to determine factors that influence cost efficiency.

Findings

The results showed that cost efficiency indexes range from 1 to 57 percent averaging at 20.2 percent. Large rice mills were found to be most efficient with the mean cost efficiency of 25 percent. Paddy, transport and energy costs contributed positively and significantly (p=0.05 and p=0.01) to cost efficiency. Milling capacity and machine age increase cost efficiency while the distance to purchase paddy and quantity of diesel used reduces cost efficiency.

Social implications

The paper shows that there is enough potential for rice millers to improve their cost efficiency based on the available technology. This has a direct implication on the economy through the increased domestic production and processing of rice to meet the increasing demand for locally produced rice.

Originality/value

The paper attempts to bridge the gap in the literature of cost efficiency among rice millers in Nigeria, and specifically in the application of the normalized quadratic cost function in estimating cost efficiency in the rice milling sector in Nigeria.

Details

International Journal of Social Economics, vol. 44 no. 12
Type: Research Article
ISSN: 0306-8293

Keywords

Article
Publication date: 4 November 2013

Levi Alan Russell, Michael R. Langemeier and Brian C. Briggeman

– This paper aims to develop and utilize a conceptual framework to examine the impact of liquidity and solvency on cost efficiency for a sample of Kansas farms.

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Abstract

Purpose

This paper aims to develop and utilize a conceptual framework to examine the impact of liquidity and solvency on cost efficiency for a sample of Kansas farms.

Design/methodology/approach

A standard cost-efficiency model is modified to incorporate liquidity and solvency ratios. Tobit regressions are used to determine the impact of farm characteristics on improvements in efficiency.

Findings

Results confirm that liquidity and solvency measures have a significant impact on improving cost efficiency. Farms with larger expenditures on purchased inputs relative to capital were less likely to improve efficiency when liquidity and solvency were considered.

Originality/value

To the authors' knowledge, the paper is the first to add liquidity and solvency ratios to the cost-efficiency model developed by Färe et al. for the analysis of farms.

Details

Agricultural Finance Review, vol. 73 no. 3
Type: Research Article
ISSN: 0002-1466

Keywords

Article
Publication date: 23 April 2020

Kekoura Sakouvogui and Saleem Shaik

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…

Abstract

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.

Details

Studies in Economics and Finance, vol. 37 no. 2
Type: Research Article
ISSN: 1086-7376

Keywords

Article
Publication date: 4 May 2020

Kekoura Sakouvogui

The consistency of stochastic frontier analysis (SFA) and data envelopment analysis (DEA) cost efficiency measures using a sample of 650 commercial and domestic banks in…

Abstract

Purpose

The 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/approach

Due 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.

Findings

The 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/value

This research is the first to provide comparative efficiency measures needed for desirable policy conclusions of heterogeneous and homogeneous US banks.

Details

Journal of Economic Studies, vol. 47 no. 7
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 17 July 2020

David Adeabah and Charles Andoh

The study examines the relationship between the consequential social cost of market power (i.e. welfare performance of banks) and cost efficiency using data covering the…

Abstract

Purpose

The study examines the relationship between the consequential social cost of market power (i.e. welfare performance of banks) and cost efficiency using data covering the period 2009 to 2017 from the Ghanaian banking industry.

Design/methodology/approach

The study adopts the ordinary least squares (OLS), fixed effect (FE) panel regression and the quantile regression (QR) approaches to control for heterogeneity and provide increased room for policy relevance. The two-stage least squares instrumental variables (2SLS-IV) regression is used to ensure the robustness of the findings against the problem of possible reverse causality.

Findings

The results indicate a positive relationship between banks' welfare performance and cost efficiency, which suggests that greater cost efficiency hedges welfare losses. In other words, welfare gains and cost-efficient banks are not mutually exclusive. Also, the results show evidence that the sensitivity of welfare gain to cost efficiency depends on the knowledge of local market dynamics. Further, the findings from the QR estimation suggest that, but for welfare loss at low (Q.25) to the median (Q.50) quantiles, cost efficiency is a necessary and sufficient condition to hedge the welfare losses.

Practical implications

The results demonstrate that financial consumer protection cannot be achieved without cost efficiency in the presence of both foreign banks and high market knowledge. Therefore, our paper suggests an integrated cost efficiency policy approach that has the complementary effect of a robust information sharing mechanism and incentives to hedge against welfare losses in the banking sector of emerging economies. Moreover, if welfare gain is synonymous with cost-efficient banks, then the presence of a quiet life is typical of financial consumer protection.

Originality/value

This study provides insight into the importance of cost efficiency to the public policy of financial consumer protection in an era of foreign banks' dominance. From the review of prior literature, this paper is the first to apply the QR estimation technique to examine the effect of cost efficiency throughout the conditional distribution of bank welfare performance rather than just the conditional mean effect of cost efficiency.

Details

International Journal of Managerial Finance, vol. 16 no. 5
Type: Research Article
ISSN: 1743-9132

Keywords

Book part
Publication date: 16 February 2006

Peter Zajc

The processes of liberalisation, globalisation and integration have brought new dynamics into banking markets. In an increasingly competitive environment, banks have been…

Abstract

The processes of liberalisation, globalisation and integration have brought new dynamics into banking markets. In an increasingly competitive environment, banks have been forced to refocus their strategies and examine their performance, because their survival in the 21st century will depend on efficiency (Denizer & Tarimcilar, 2001). In recent years, therefore, bank efficiency has received wide attention, and researchers have developed an extensive array of sophisticated methods and tools to estimate efficiency.

Details

Emerging European Financial Markets: Independence and Integration Post-Enlargement
Type: Book
ISBN: 978-0-76231-264-1

Article
Publication date: 1 June 2021

Sholikha Oktavi Khalifaturofi'ah

This study aims to examine the effect of financial innovation, financial ratios, cost efficiency and good corporate governance on the financial performance of banks in Indonesia.

Abstract

Purpose

This study aims to examine the effect of financial innovation, financial ratios, cost efficiency and good corporate governance on the financial performance of banks in Indonesia.

Design/methodology/approach

The data in this study are in the form of annual financial statements of conventional banks in Indonesia. The effect of cost efficiency, innovation and financial performance of banks in Indonesia is expected to be evident in 2009–2018. The research method used is the panel regression method.

Findings

The results show that financial innovation affects the financial performance of banks. Cost efficiency has a negative effect on the financial performance of banks. Financial ratio, which is proxied by the capital adequacy ratio (CAR) and loan to deposit ratio, has a positive effect on return on asset and net interest margin. Financial ratio, which is proxied by nonperforming loan and equity to total assets, has a negative effect on return on asset and return on equity. Good corporate governance (GCG), which is proxied by the proportion of managerial ownership (PMO), does not affect the financial performance of banks, whereas GCG, which is proxied by the proportion of independent board of directors, has a negative and significant effect on the financial performance of banks in Indonesia.

Practical implications

These results are a warning to bankers and the government to be cautious when formulating a strategy for the financial performance of banking.

Originality/value

Cost efficiency and financial innovation are important for the financial performance of banking. However, the possible impact of cost efficiency and financial innovation in Indonesia does not have a significant impact. The study uses static panel estimation techniques to analyze the data.

Details

Journal of Economic and Administrative Sciences, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1026-4116

Keywords

1 – 10 of over 5000