ABSTRACT
Since its introduction by Aigner et al. (1977), Battese and Corra (1977) and Meeusen and van der Broeck (1977) stochastic frontier analysis (SFA) has received increasing attention in the literature as a methodology to measure a single firm’s efficiency. Much of this popularity results from the opportunity offered to the researcher to rank individual firms, to obtain average industry efficiency and to identify best and worst practice (Coelli et al., 1998). From a regulatory perspective, these are appealing features of SFA in order to gather information on bank stability in times when bank industries around the world undergo significant changes. For practitioners, the methodology provides interesting orientation as to which banks might serve as a role model (see, for example, Molyneux et al., 1997).
