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The relative efficiency of stock versus mutual S&Ls: A stochastic cost frontier approach

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Abstract

From an agency theory perspective, recent conversion activity of savings and loan associations (S&Ls) from mutual to stock organizations should improve the overall performance of the thrift industry. We employ a two-step approach to examine this issue using a sample of 559 S&Ls in the Atlanta Federal Home Loan Bank District in 1988. In the first step, we estimate inefficiency scores for individual S&Ls using a stochastic cost frontier methodology. In a second step Tobit model we use these inefficiency scores to examine the relationship between firm inefficiency and organizational form. We find three important results: (1) that the mutual and stock S&Ls in our sample have similar cost structures, allowing the pooling of S&L data; (2) that S&Ls have a wide range of inefficiency scores, with a mean score of 16 percent indicating that the average S&L could produce its output with only 84 percent of the inputs actually used; and (3) that operating inefficiency was not significantly related to form of ownership.

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Authors and Affiliations

  1. Department of Economics and Finance, Merrick School of Business, University of Baltimore, 21201-5779, Baltimore, Maryland, USA

    A. Sinan Cebenoyan, Elizabeth S. Cooperman & Charles A. Register

  2. Department of Finance, College of Business and Public Administration, Old Dominion University, 23529-0223, Norfolk, Virginia, USA

    Sylvia C. Hudgins

Authors
  1. A. Sinan Cebenoyan
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  2. Elizabeth S. Cooperman
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  3. Charles A. Register
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  4. Sylvia C. Hudgins
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Cebenoyan, A.S., Cooperman, E.S., Register, C.A. et al. The relative efficiency of stock versus mutual S&Ls: A stochastic cost frontier approach. J Finan Serv Res 7, 151–170 (1993). https://doi.org/10.1007/BF01046903

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