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Returns to scale in cost, revenue, and profit for European banks: New results from nonparametric local linear methods

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  • Ji Wu
  • Shirong Zhao
Abstract
The continuously increasing bank sizes have received much attention from both policymakers and researchers. We present new estimates of returns to scale in cost, revenue, and profit for European banks over 2000–2020 based on nonparametric, local‐linear methods. We find that most banks faced increasing returns to scale in cost and decreasing returns to scale in revenue and profit across years, across European countries, and across bank size quartiles. Our results suggest that restricting the size of banks may not bring too much loss of revenue and profit, but could prevent European banks from exploiting increasing returns to scale in cost.

Suggested Citation

  • Ji Wu & Shirong Zhao, 2024. "Returns to scale in cost, revenue, and profit for European banks: New results from nonparametric local linear methods," The Financial Review, Eastern Finance Association, vol. 59(2), pages 487-517, May.
    • Handle: RePEc:bla:finrev:v:59:y:2024:i:2:p:487-517
    DOI: 10.1111/fire.12369
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