Efficiency assessment of regional banks using a stochastic frontier model

Abstract

This study examines managerial efficiency of nine regional banks that was newly established by mergers conducted from 2002 to 2013. For the purpose, this study estimates stochastic frontier production functions using a data set comprising the nine merged banks and the other non-merged regional banks. Ordinary revenue is used as a dependent variable, and number of employees, number of branches, and fund procurement cost are used as independent variables for the production function. Estimation results present statistically significant coefficients of the number of employees and the fund procurement cost, and found significant differences in efficiencies between merged and non-merged banks. The result does not necessarily indicate the merged banks improve their managerial efficiency.