Faculty Publications
An Entropy Approach To Size And Variance Heterogeneity In U.S. Commercial Banks
Document Type
Article
Keywords
Commercial Banks, Cost Frontier, Heteroskedasticity, Maximum Entropy
Journal/Book/Conference Title
Journal of Economics and Finance
Volume
36
Issue
3
First Page
728
Last Page
749
Abstract
In this paper, we investigate the effect of bank size differences on cost efficiency heterogeneity using a heteroskedastic stochastic frontier model. This model is implemented by using an information theoretic maximum entropy approach. We explicitly model both bank size and variance heterogeneity simultaneously. We find that non-performing loans, federal insurance premium, legal expenses and director fees drive bank inefficiency as the bank becomes larger. Moral hazard, bank management and a "too big to fail" doctrine are likely explanations for the results from this study. © 2010 Springer Science+Business Media, LLC.
Department
Department of Finance
Original Publication Date
7-1-2012
DOI of published version
10.1007/s12197-010-9148-5
Recommended Citation
Balasubramanyan, Lakshmi; Stefanou, Spiro E.; and Stokes, Jeffrey R., "An Entropy Approach To Size And Variance Heterogeneity In U.S. Commercial Banks" (2012). Faculty Publications. 1776.
https://scholarworks.uni.edu/facpub/1776
