Examinando por Autor "Kumbhakar, Subal C."
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Ítem Are all U.S. credit unions alike?(Universidad EAFIT, 2013-04-11) Malikov, Emir; Restrepo, Diego A.; Kumbhakar, Subal C.This paper raises concerns about the econometric approach used in the literature to estimate credit unions’ production technologies. We show that the existing studies did not recognize heterogeneity amongst credit unions’ technologies as captured by (endogenously selected) differing output mixes. Failure to account for the above leads to biased, inconsistent estimates and potentially misleading results. The estimates are also likely to be biased due to unobserved credit union specific effects that the literature broadly ignores. To address these concerns, we develop a generalized model of endogenous switching with polychotomous choice that is able to account for fixed effects in both the technology selection and the outcome equations. We use this model to estimate returns to scale for the U.S. retail credit unions from 1994 to 2011. Unlike recent studies, we find that not all credit unions enjoy increasing returns to scale. A nonnegligible number of large institutions operate at decreasing returns to scale, indicating that they should either cut back in size or switch to a more efficient technology by re-optimizing the output mix.Ítem Are U.S. Commercial Banks Too Big?(Universidad EAFIT, 2013-02-02) Restrepo, Diego A.; Kumbhakar, Subal C.; Sun, KaiThis paper presents new nonparametric measures of scale economies and TFP growth for U.S. banks. Unlike previous studies that use fully nonparametric models, our approach controls for time-invariant unobserved heterogeneity among banks in estimating returns to scale, TFP growth and its components. Using data for U.S. commercial banks from 2001 to 2010, we find evidence of significant scale economies across the entire bank size distribution. Returns to scale are persistent over time, decrease with bank size, and contribute significantly to TFP growth. Our results indicate that almost all small and medium size banks and most of the largest banks have strong economic incentives to keep growing. Thus, the consolidation of the banking industry is unlikely to retrench in the near future.Ítem Enjoying the quiet life under deregulation? . Not quite(John Wiley & Sons, Ltd., 2014) Restrepo-Tobón, Diego; Kumbhakar, Subal C.; EAFIT University, Medellín, Colombia; University of New York, Binghamton, NY, USA; Economía y Finanzas; Finanzas; Grupo de Investigación Finanzas y BancaMost empirical studies in the banking literature assume that the alternative profit function is linearly homogeneous in input prices. We show that such an assumption is theoretically unwarranted and that its use may yield misleading results. We use Koetter et al. (Review of Economics and Statistics 2012; 94(2): 462–480) as a benchmark to showcase how empirical results can be sensitive to the linear homogeneity assumption. Contrary to Koetter et al., we find a positive relation between market power and profit efficiency when this assumption is dropped. This relation is slightly weakened after the wave of intrastate and interstate deregulation but not enough to support the ‘quiet life’ hypothesis.Ítem Estimation of banking technology under credit uncertainty(Universidad EAFIT, 2013-05-15) Malikov, Emir; Restrepo, Diego A.; Kumbhakar, Subal C.Credit risk is crucial to understanding banks’ production technology and should be explicitly accounted for when modeling the latter. The banking literature has largely accounted for risk by using ex-post realizations of banks’ uncertain outputs and the variables intended to capture risk. This is equivalent to estimating an ex-post realization of bank’s production technology which, however, may not reflect optimality conditions that banks seek to satisfy under uncertainty. The ex-post estimates of technology are likely to be biased and inconsistent, and one thus may call into question the reliability of the results regarding banks’ technological characteristics broadly reported in the literature. However, the extent to which these concerns are relevant for policy analysis is an empirical question. In this paper, we offer an alternative methodology to estimate banks’ production technology based on the ex-ante cost function. We model credit uncertainty explicitly by recognizing that bank managers minimize costs subject to given expected outputs and credit risk. We estimate unobservable expected outputs and associated credit risk levels from banks’ supply functions via nonparametric kernel methods. We apply this framework to estimate production technology of U.S. commercial banks during the period from 2001 to 2010 and contrast the new estimates with those based on the ex-post models widely employed in the literature.Ítem Estimation of banking technology under credit uncertainty(Springer International Publishing, 2014) Malikov, Emir; Restrepo-Tobón, Diego; Kumbhakar, Subal C.; Department of Economics, State University of New York at Binghamton, Department of Economics, St. Lawrence University; Department of Finance, EAFIT University; Department of Economics, State University of New York at Binghamton; Economía y Finanzas; Finanzas; Grupo de Investigación Finanzas y BancaCredit risk is crucial to understanding banks’ production technology and should be explicitly accounted for when modeling the latter. The banking literature has largely accounted for risk usingex-post realizations of banks’ uncertain outputs and the variables intended to capture risk. This is equivalent to estimating an ex-post realization of bank’s production technology which, however, may not reflect optimality conditions that banks seek to satisfy under uncertainty. The ex-post estimates of technology are likely to be biased and inconsistent, and one thus may call into question the reliability of the results regarding banks’ technological characteristics broadly reported in the literature. However, the extent to which these concerns are relevant for policy analysis is an empirical question. In this paper, we offer an alternative methodology to estimate banks’ production technology based on the ex-ante cost function. We model credit uncertainty explicitly by recognizing that bank managers minimize costs subject to given expected outputs and credit risk. We estimate unobservable expected outputs and associated credit risk levels from banks’ supply functions via nonparametric kernel methods. We apply this framework to estimate production technology of U.S. commercial banks during the period from 2001 to 2010 and contrast the new estimates with those based on the ex-post models widely employed in the literature.Ítem Nonparametric estimation of returns to scale using input distance functions: an application to large US banks(Springer International Publishing , 2015) Restrepo-Tobón, Diego; Kumbhakar, Subal C.; EAFIT University; Binghamton University; Economía y Finanzas; Finanzas; Grupo de Investigación Finanzas y BancaWe derive new measures of returns to scale based on input distance functions (IDFs) and estimate them using nonparametric regression methods. In contrast to the cost function approach, the IDF does not require input prices which are usually unavailable or measured imprecisely. In addition, we can account for equity and physical capital in the IDF. These variables are either excluded from the analysis (especially in a cost function approach) or treated as quasi-fixed inputs, because their prices are not readily available. In our application, we use data for bank holding companies and large commercial banks in the U.S. from 2000 to 2010. We find that although some of these institutions enjoy increasing returns to scale, scale economies are economically small. Thus, concerns about potential cost increases arising from breaking up large banking organizations seem exaggerated, especially from the scale economies point of view.Ítem Obelix vs. Asterix: Size of US commercial banks and its regulatory challenge(Springer International Publishing, 2015) Restrepo-Tobón, Diego; Kumbhakar, Subal C.; Sun, Kai; EAFIT University; Binghamton University, University of Stavanger Business School; University of Salford; Economía y Finanzas; Finanzas; Grupo de Investigación Finanzas y BancaBig banks pose substantial costs to society in the form of increased systemic risk and government bailouts during crises. So the question is: Should regulators limit the size of banks? To answer this question, regulators need to assess the potential costs of such regulations. If big banks enjoy substantial scale economies (i.e., average costs get lower as bank size increases), limiting the size of banks through regulations may be inefficient and likely to reduce social welfare. However, the literature offers conflicting results regarding the existence of economies of scale for the biggest US banks. We contribute to this literature using a novel approach to estimating nonparametric measures of scale economies and total factor productivity (TFP) growth. For US commercial banks, we find that around 73 % of the top one hundred banks, 98 % of medium and small banks, and seven of the top ten biggest banks by asset size exhibit substantial economies of scale. Likewise, we find that scale economies contribute positively and significantly to their TFP growth. The existence of substantial scale economies raises an important challenge for regulators to pursue size limit regulations.Ítem Profit efficiency of U.S. commercial banks: a decomposition(Universidad EAFIT, 2013-06-05) Restrepo, Diego A.; Kumbhakar, Subal C.This paper presents new evidence regarding the relation between profit, revenue, and cost efficiencies of U.S. commercial banks. Building on the widely used nonstandard profit function (NSPF) approach, we show (i) why estimation of NSPF would be wrong and (ii) how revenue and cost efficiencies contribute to profit efficiency. Using data from U.S. comercial banks from 2001 to 2010, we find that losses due to profit inefficiency represents about 8.2% of banks’ equity of which 3.5% is due to revenue inefficiency and 4.7% to cost inefficiency. Cost efficiency weighs more than revenue efficiency in estimated profit efficiency. However, compared with cost inefficiency, revenue inefficiency affects more overall profitability