Production Efficiency Differences between Large and Small Banks

Abstract

Management Involves the critical entrepreneurial function besides routine supervision. Since entrepreneurship is not an explicit input, its Impact on output gets refiected by the neutral efficiency parameter in a neoclassical production function framework. Employing the Cobb-Douglas production function, per (standard) branch Income differences between the 14 Large (LBG) and 13 Small (SBG) Bank Groups was accounted for in terms of differential neutral output efficiency, non-neutral resource efficiency use and resource input use per (standard) branch. During 1974-76, the LBG was found to have an edge over the SBC in neutral output efficiency which pattern reversed during 1984-86. The opposite was true with respect to the role of non-neutral resource efficiency use. The contribution of differential input use was in favour of the LBG though the size of the difference declined in convergence over the decade.