Examining the determinants of efficiency using a latent class stochastic frontier model

Figures & data

Table 1. Summary statistics of input and output variables (Figures in Ghana Cedi)

	Mean	Standard deviation	Minimum	Maximum
Output
Loans and advances	293 447 556.86	331 729 421	6 392 300	2 065 056 490
Inputs
Deposits	456 968 358.78	606 473 391.7	13 917 700	4 284 732 561
Staff costs	16 020 400.60	19 575 478.45	23 362.72	94 760 008.11
Fixed assets	19 807 316.15	22 657 175.18	480 581	141602 595

Table 2. Estimated prior probabilities for class membership

Estimated prior probabilities for class membership
	Coefficient	Std. Error	z value	Prob.|z| > Z
Class1Pr	0.455	0.153	2.975	0.0029
Class2Pr	0.544	0.153	3.554	0.0004

Figure 1. Kernel density for BC specification.

Figure 2. Kernel density for latent class BC specification.

Table 3. Average annual efficiency indexes in different number of class

Year	Class 1	Class 2	Overall
2006	0.323	0.554	0.445
2007	0.389	0.588	0.487
2008	0.548	0.640	0.589
2009	0.561	0.697	0.627
2010	0.574	0.750	0.665
Overall mean	0.479	0.646	0.563
No. of banks	12	16

Table 4. Average efficiency indexes of Banks in different number of class

Class 1		Class 2
Banks	Efficiency	Bank	Efficiency
AA	0.895	BA	0.935
AB	0.299	BB	0.731
AC	0.761	BC	0.917
AD	0.792	BD	0.672
AE	0.225	BE	0.758
AF	0.917	BF	0.451
AG	0.631	BG	0.251
AH	0.005	BH	0.768
AI	0.222	BI	0.766
AJ	0.159	BJ	0.719
AK	0.041	BK	0.399
AL	0.066	BL	0.946
		BM	0.391
		BN	0.539
		BO	0.368
		BP	0.224

Table 5. Maximum likelihood estimates for parameters of the Cobb-Douglas stochastic frontier production function with efficiency component

Parameters	BC	Latent class BC
Production frontier		Class 1	Class 2
	Coefficient	Coefficient	Coefficient
Constant	15.904^*** (0.311)	15.999^*** (2.578)	14.671^*** (0.733)
Deposits	0.173^*** (0.031)	0.179 (0.198)	0.294^*** (0.103)
Labour	0.004^*** (0.001)	0.003 (0.010)	0.002 (0.002)
Capital	0.143^** (0.057)	0.109 (0.144)	0.071 (0.103)
Trend	0.019 (0.085)	0.092 (0.769)	0.105 (0.075)
Inefficiency effects
Inflation	−0.295^*** (0.049)	−0.480^* (0.259)	0.001 (0.285)
Total Assets	−0.247^*** (0.076)	−0.252 (0.178)	−0.291^* (0.157)
Concentration	0.725 (0.918)	0.902 (5.234)	0.592 (1.541)
ROA	−0.783^** (0.394)	−0.293 (2.696)	−0.199 (1.839)
Variance parameters
Lamda	5.511^*** (0.072)	4.433^*** (0.109)	4.404^*** (0.311)
Sigma u^2	14.981^*** (0.412)	0.999^*** (0.001)	0.999^** (0.419)
Loglikelihood	43.699	23.261	23.261

Notes: Standard errors in parenthesis.

First lag is used in the case of inefficiency variables to minimize endogeneity problems. A negative sign on the coefficient of the z_it vector variable represent a reduction in inefficiencies.

^* Statistical significance at 10% level.

^** Statistical significance at 5% level.

^*** Statistical significance at 1% level.