Identification of segments of European banks with a latent class frontier model

Barros, Carlos Pestana, Caporale, Guglielmo Maria and Gil-Alana, Luis A. (2007) Identification of segments of European banks with a latent class frontier model. Centre for International Capital Markets discussion papers, 2007 (12). pp. 1-22. ISSN 1749-3412

Abstract

This paper analyses technical efficiency of European banks over the period 1996-2003 with unbalanced panel data techniques. A latent class frontier model is used which allows the identification of different segments in the production frontier. We find that there are three statistically significant segments in the sample. Therefore, we conclude that no common banking policy can be effective for all the banks included in the sample, and that banking policies by segments are required instead.

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