Estimating and Analysing the Cost Efficiency of Greek Cooperative Banks: An Application of Two-Stage Data Envelopment Analysis

Abstract

We follow a two-stage procedure to examine for the first time the cost efficiency of Greek cooperative banks. Our sample consists of 16 banks over the period 2000-2004. We first use data envelopment analysis (DEA) to estimate the technical, allocative and cost efficiency for each bank in sample. Then, we use Tobit regression to determine the impact of internal and external factors on banks' efficiency. The results of DEA indicate that Greek cooperative banks could improve their cost efficiency by 17.7% on average as well as that the dominant source of cost inefficiency is allocative rather than technical. The results of Tobit regression indicate that size has a positive impact on all measures of efficiency. However, the impact of capitalization, branches and ATMs depends on the efficiency measure and whether we control for market conditions or not. GDP per capita has a negative and significant impact on all measures of efficiency, while unemployment rate has also a negative and significant impact on technical and cost efficiency although not on allocative efficiency. Finally, banks operating in regions with higher disposal income of households in relation to the total disposal income of households in Greece are more efficient in terms of allocative and cost efficiency.

Keywords: Banking, Cooperative, Data envelopment analysis, Efficiency, Tobit Regression

JEL Classification: G21, C24, C67, D61