Cost Efficiency of Italian Commercial Banks:A Stochastic Frontier Analysis

Abstract

During 90's, the Italian banking system faced a new competitive environment both widening the dimensional scale and pursuing a rationalization process. Some insights could be drawn through efficiency analysis by estimation of a stochastic cost frontier for the period 1993-2004. Benchmark analysis not only highlights the contribution of the main factors that affect efficiency, but also allows evaluation of efficiency dynamics through time, determining the presence of technical progress and scale economies. However, such measure is significant if the sample of firms is homogeneous hence, accounting for heterogeneity of the units involved is then a goal of our analysis.