Journal of Financial Services Research

, Volume 4, Issue 2, pp 157–168 | Cite as

A nonparametric approach to measurement of efficiency and technological change: The case of large U.S. commercial banks

  • Elyas Elyasiani
  • Seyed M. Mehdian


The purpose of this paper is to derive the efficiency measures and the rate of technological change for a sample of large U.S. commercial banks by employing a nonparametric technique. This technique is used to construct a multiproduct production frontier relative to which the efficiency measures of the banks in the sample are calculated and the displacement of which over time provides a measure of the rate of technological change. The empirical results indicate that the relevant frontier shifted inward between 1980 and 1985 reflecting a high pace of technological advancement achieved by the banks in the sample. The pace varied significantly across the banks with some banks even regressing over time.


Empirical Result Technological Change Commercial Bank Efficiency Measure Technological Advancement 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Aly, Hassan Y., Grabowski, Richard, Pasurka, Carl, and Rangan, Nanda. “Technical, Scale, and Allocative Efficiencies in U.S. Banking: An Empirical Investigation.” Presentation at the Southern Finance Association Meetings, 1988.Google Scholar
  2. Benston, George J., Berger, Allen N., Hanweck, Gerald A., and Humphrey, David B. “Economies of Scale and Scope in Banking.” Proceedings of a conference on Bank Structure and Competition. Federal Reserve Bank of Chicago, May 1983.Google Scholar
  3. BenstonGeorge J., HanweckGerald A., and HumphreyDavid B. “Scale Economies in Banking: A Restructuring and Reassessment.” Journal of Money, Credit, and Banking 4 (November 1982), 435–456.Google Scholar
  4. Berger, Allen N., Hanweck, Gerald A., and Humphrey, David B. “Competitive Viability in Banking: Scale, Scope and Product Mix Economies.” Journal of Monetary Economics (1987), 501–520.Google Scholar
  5. BrynesPatricia, FäreRolf, GrosskopfShawna, and Knox LovellC.A. “The Effect of Unions on Productivity: U.S. Surface Mining of Coal.” Management Science 34 (September 1988), 1037–1053.Google Scholar
  6. Caves, Douglas W., Christensen, Laurits R., and Swanson, Joseph A. “Productivity in U.S. Railroads, 1951–1974.” The Bell Journal of Economics (Spring 1980), 166–181.Google Scholar
  7. Chan, M.W. Luke, and Mountain, Dean C. “Technological Change and Economies of Scale in Canadian Financial Institutions: A Selection from Competing Hypotheses.” Journal of Economics and Business (February 1987), 57–66.Google Scholar
  8. FäreRoff, GrosskopfShawna, and Knox LovellC.A. The Measurement of Efficiency and Productivity. Boston: Kluwer Nijhoff, 1985.Google Scholar
  9. Farrell, M.J. “The Measurement of Productive Efficiency.” Journal of the Royal Statistical Society, Series A (1957), 253–281.Google Scholar
  10. Ferrier, Gary D., and Knox Lovell, C.A. “Measuring Cost Efficiency in Banking: Econometric and Linear Programming Evidence.” Journal of Econometrics (forthcoming).Google Scholar
  11. Gilligan, Thomas, Smirlock, Michael, and Marshall, William. “Scale and Scope Economies in the Multiproduct Banking Firm.” Journal of Monetary Economics (May 1984), 393–405.Google Scholar
  12. GrabowskiRichard, and PasurkaCarl. “The Relative Technical Efficiency of Northern and Southern U.S. Farms in 1980.” Southern Economic Journal 54 (January 1988), 598–614.Google Scholar
  13. RanganNanda, GrabowskiRichard, AlyHassan Y., and PasurkaCarl. “The Technical Efficiency of U.S. Banks.” Economics Letters 28 (1988), 169–175.Google Scholar
  14. Hunter, William C., and Timme, Stephen G. “Technical Change, Organizational Form, and the Structure of Bank Production.” Journal of Money, Credit, and Banking (May 1986), 152–166.Google Scholar
  15. LawrenceColin, and ShayRobert P. Technological Innovation, Regulation, and the Monetary Economy. Cambridge: Ballinger Publishing Company, 1986.Google Scholar
  16. Mester, Loretta. “Efficient Production of Financial Services: Scale and Scope Economies.” Business Review of Federal Reserve Bank of Philadelphia (January/February 1987), 15–25.Google Scholar
  17. NishimizuM., and PageJohnJr. “Total Factor Productivity Growth, Technological Progress and Financial Efficiency Change: Dimensions of Productivity Change in Yugoslavia, “1956–1978.” The Economic Journal 92 (December 1982), 920–936.Google Scholar

Copyright information

© Kluwer Academic Publishers 1990

Authors and Affiliations

  • Elyas Elyasiani
    • 1
  • Seyed M. Mehdian
    • 2
  1. 1.Department of EconomicsTemple UniversityUSA
  2. 2.Department of FinanceTemple UniversityUSA

Personalised recommendations