[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/71593.html
   My bibliography  Save this paper

Heterogeneous Credit Union Production Technologies with Endogenous Switching and Correlated Effects

Author

Listed:
  • Malikov, Emir
  • Restrepo-Tobon, Diego A
  • Kumbhakar, Subal C.
Abstract
Credit unions differ in the types of financial services they offer to their members. This paper explicitly models this observed heterogeneity using a generalized model of endogenous ordered switching. Our approach captures the endogenous choice that credit unions make when adding new products to their financial services mix. The model that we consider also allows for the dependence between unobserved effects and regressors in both the selection and outcome equations and can accommodate the presence of predetermined covariates in the model. We use this model to estimate returns to scale for U.S. retail credit unions from 1996 to 2011. We document strong evidence of persistent technological heterogeneity among credit unions offering different financial service mixes, which, if ignored, can produce quite misleading results. Employing our model, we find that credit unions of all types exhibit substantial economies of scale.

Suggested Citation

  • Malikov, Emir & Restrepo-Tobon, Diego A & Kumbhakar, Subal C., 2016. "Heterogeneous Credit Union Production Technologies with Endogenous Switching and Correlated Effects," MPRA Paper 71593, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:71593
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/71593/1/MPRA_paper_71593.pdf
    File Function: original version
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Charlier, Erwin & Melenberg, Bertrand & van Soest, Arthur, 2001. "An analysis of housing expenditure using semiparametric models and panel data," Journal of Econometrics, Elsevier, vol. 101(1), pages 71-107, March.
    2. Wooldridge, Jeffrey M., 1995. "Selection corrections for panel data models under conditional mean independence assumptions," Journal of Econometrics, Elsevier, vol. 68(1), pages 115-132, July.
    3. Bauer, Keldon J. & Miles, Linda L. & Nishikawa, Takeshi, 2009. "The effect of mergers on credit union performance," Journal of Banking & Finance, Elsevier, vol. 33(12), pages 2267-2274, December.
    4. Hughes, Joseph P. & Mester, Loretta J., 2013. "Who said large banks don’t experience scale economies? Evidence from a risk-return-driven cost function," Journal of Financial Intermediation, Elsevier, vol. 22(4), pages 559-585.
    5. Semykina, Anastasia & Wooldridge, Jeffrey M., 2010. "Estimating panel data models in the presence of endogeneity and selection," Journal of Econometrics, Elsevier, vol. 157(2), pages 375-380, August.
    6. Verbeek, Marno, 1990. "On the estimation of a fixed effects model with selectivity bias," Economics Letters, Elsevier, vol. 34(3), pages 267-270, November.
    7. Mitchell A. Petersen & Raghuram G. Rajan, 2002. "Does Distance Still Matter? The Information Revolution in Small Business Lending," Journal of Finance, American Finance Association, vol. 57(6), pages 2533-2570, December.
    8. David C. Wheelock & Paul W. Wilson, 2011. "Are Credit Unions Too Small?," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1343-1359, November.
    9. Manuel Arellano & Olympia Bover & José M. Labeaga, 1997. "Authoregressive Models with Sample Selectivity for Panel Data," Working Papers wp1997_9706, CEMFI.
    10. Thierry Magnac, 2004. "Panel Binary Variables and Sufficiency: Generalizing Conditional Logit," Econometrica, Econometric Society, vol. 72(6), pages 1859-1876, November.
    11. Joseph P. Hughes & Loretta J. Mester, 1998. "Bank Capitalization And Cost: Evidence Of Scale Economies In Risk Management And Signaling," The Review of Economics and Statistics, MIT Press, vol. 80(2), pages 314-325, May.
    12. Caves, Douglas W & Christensen, Laurits R & Swanson, Joseph A, 1981. "Productivity Growth, Scale Economies, and Capacity Utilization in U.S. Railroads, 1955-74," American Economic Review, American Economic Association, vol. 71(5), pages 994-1002, December.
    13. Malikov, Emir & Kumbhakar, Subal C., 2014. "A generalized panel data switching regression model," Economics Letters, Elsevier, vol. 124(3), pages 353-357.
    14. Gayle, George-Levi & Viauroux, Christelle, 2007. "Root-N consistent semiparametric estimators of a dynamic panel-sample-selection model," Journal of Econometrics, Elsevier, vol. 141(1), pages 179-212, November.
    15. James A. Wilcox, 2006. "Performance divergence of large and small credit unions," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue aug4.
    16. Malikov, Emir & Kumbhakar, Subal C. & Sun, Yiguo, 2016. "Varying coefficient panel data model in the presence of endogenous selectivity and fixed effects," Journal of Econometrics, Elsevier, vol. 190(2), pages 233-251.
    17. W Scott Frame & Gordon V Karels & Christine A McClatchey, 2003. "Do credit unions use their tax advantage to benefit members? Evidence from a cost function," Review of Financial Economics, John Wiley & Sons, vol. 12(1), pages 35-47.
    18. María Engracia Rochina-Barrachina, 1999. "A New Estimator for Panel Data Sample Selection Models," Annals of Economics and Statistics, GENES, issue 55-56, pages 153-181.
    19. Arellano, Manuel & Carrasco, Raquel, 2003. "Binary choice panel data models with predetermined variables," Journal of Econometrics, Elsevier, vol. 115(1), pages 125-157, July.
    20. Ekaterini Kyriazidou, 1997. "Estimation of a Panel Data Sample Selection Model," Econometrica, Econometric Society, vol. 65(6), pages 1335-1364, November.
    21. Lee, Myoung-jae & Vella, Francis, 2006. "A semi-parametric estimator for censored selection models with endogeneity," Journal of Econometrics, Elsevier, vol. 130(2), pages 235-252, February.
    22. Smith, Donald J, 1984. "A Theoretic Framework for the Analysis of Credit Union Decision Making," Journal of Finance, American Finance Association, vol. 39(4), pages 1155-1168, September.
    23. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 47(1), pages 225-238.
    24. Wheelock, David C. & Wilson, Paul W., 2013. "The evolution of cost-productivity and efficiency among US credit unions," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 75-88.
    25. repec:adr:anecst:y:1999:i:55-56:p:06 is not listed on IDEAS
    26. John R. Walter, 2006. "Not your father's credit union," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 92(Fall), pages 353-377.
    27. Magnac, Thierry, 2000. "Subsidised Training and Youth Employment: Distinguishing Unobserved Heterogeneity from State Dependence in Labour Market Histories," Economic Journal, Royal Economic Society, vol. 110(466), pages 805-837, October.
    28. James A. Wilcox, 2005. "Economies of scale and continuing consolidation of credit unions," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov4.
    29. Hsiao,Cheng & Pesaran,M. Hashem & Lahiri,Kajal & Lee,Lung Fei (ed.), 1999. "Analysis of Panels and Limited Dependent Variable Models," Cambridge Books, Cambridge University Press, number 9780521631693, September.
    30. Newey, Whitney K., 1984. "A method of moments interpretation of sequential estimators," Economics Letters, Elsevier, vol. 14(2-3), pages 201-206.
    31. Goddard, John & McKillop, Donal & Wilson, John O.S., 2008. "The diversification and financial performance of US credit unions," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1836-1849, September.
    32. Arellano, Manuel, 2003. "Panel Data Econometrics," OUP Catalogue, Oxford University Press, number 9780199245291.
    33. W. Frame & Tim Coelli, 2001. "U.S. Financial Services Consolidation: The Case of Corporate Credit Unions," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 18(2), pages 229-241, March.
    34. Fried, Harold O. & Lovell, C. A. Knox & Yaisawarng, Suthathip, 1999. "The impact of mergers on credit union service provision," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 367-386, February.
    35. William R. Emmons & Frank A. Schmid, 1999. "Credit unions and the common bond," Review, Federal Reserve Bank of St. Louis, vol. 81(Sep), pages 41-64.
    36. Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
    37. Goddard, John A. & McKillop, Donal G. & Wilson, John O. S., 2002. "The growth of US credit unions," Journal of Banking & Finance, Elsevier, vol. 26(12), pages 2327-2356.
    38. Christian Dustmann & María Engracia Rochina-Barrachina, 2007. "Selection correction in panel data models: An application to the estimation of females' wage equations," Econometrics Journal, Royal Economic Society, vol. 10(2), pages 263-293, July.
    39. Bauer, Keldon, 2008. "Detecting abnormal credit union performance," Journal of Banking & Finance, Elsevier, vol. 32(4), pages 573-586, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Christian Ewerhart & Robertas Zubrickas, 2019. "Social preference and group identity in the financial cooperative," ECON - Working Papers 332, Department of Economics - University of Zurich.
    3. Etwire, Prince Maxwell & Martey, Edward, 2020. "Climate Change, Technology Use and Maize Production in West Africa," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304175, Agricultural and Applied Economics Association.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Malikov, Emir & Kumbhakar, Subal C. & Sun, Yiguo, 2016. "Varying coefficient panel data model in the presence of endogenous selectivity and fixed effects," Journal of Econometrics, Elsevier, vol. 190(2), pages 233-251.
    2. R. Raymond Sant & Stephen B. Carter, 2015. "Acquired Credit Unions: Drivers of Takeover," International Journal of Business and Social Research, MIR Center for Socio-Economic Research, vol. 5(8), pages 18-33, August.
    3. Wheelock, David C. & Wilson, Paul W., 2013. "The evolution of cost-productivity and efficiency among US credit unions," Journal of Banking & Finance, Elsevier, vol. 37(1), pages 75-88.
    4. R. Raymond Sant & Stephen B. Carter, 2015. "Acquired Credit Unions: Drivers of Takeover," International Journal of Business and Social Research, LAR Center Press, vol. 5(8), pages 18-33, August.
    5. Sergi Jiménez-Martín & José M. Labeaga & Majid al Sadoon, 2020. "Consistent estimation of panel data sample selection models," Working Papers 2020-06, FEDEA.
    6. Javier Gómez‐Biscarri & Germán López‐Espinosa & Andrés Mesa‐Toro, 2022. "Drivers of depositor discipline in credit unions," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 93(4), pages 849-885, December.
    7. McKillop, Donal & French, Declan & Quinn, Barry & Sobiech, Anna L. & Wilson, John O.S., 2020. "Cooperative financial institutions: A review of the literature," International Review of Financial Analysis, Elsevier, vol. 71(C).
    8. Sergi Jiménez-Martín & José María Labeaga, 2016. "Monte Carlo evidence on the estimation of AR(1) panel data sample selection models," Working Papers 2016-01, FEDEA.
    9. Malikov, Emir & Kumbhakar, Subal C., 2014. "A generalized panel data switching regression model," Economics Letters, Elsevier, vol. 124(3), pages 353-357.
    10. Chirok Han & Goeun Lee, 2017. "Efficient Estimation of Linear Panel Data Models with Sample Selection and Fixed Effects," Discussion Paper Series 1707, Institute of Economic Research, Korea University.
    11. Fernández-Val, Iván & Vella, Francis, 2011. "Bias corrections for two-step fixed effects panel data estimators," Journal of Econometrics, Elsevier, vol. 163(2), pages 144-162, August.
    12. Wladimir Raymond & Pierre Mohnen & Franz Palm & Sybrand Schim van der Loeff, 2007. "The Behavior of the Maximum Likelihood Estimator of Dynamic Panel Data Sample Selection Models," CESifo Working Paper Series 1992, CESifo.
    13. David C. Wheelock & Paul W. Wilson, 2009. "Robust, dynamic nonparametric benchmarking: the evolution of cost-productivity and efficiency among U.S. credit unions," Working Papers 2009-008, Federal Reserve Bank of St. Louis.
    14. Majid M. Al-Sadoon & Sergi Jiménez-Martín & Jose M. Labeaga, 2019. "Simple methods for consistent estimation of dynamic panel data sample selection models," Economics Working Papers 1631, Department of Economics and Business, Universitat Pompeu Fabra.
    15. David C. Wheelock & Paul W. Wilson, 2011. "Are Credit Unions Too Small?," The Review of Economics and Statistics, MIT Press, vol. 93(4), pages 1343-1359, November.
    16. David L. Stowe & John D. Stowe, 2018. "Credit union business models," Financial Markets, Institutions & Instruments, John Wiley & Sons, vol. 27(5), pages 169-186, December.
    17. Semykina, Anastasia & Wooldridge, Jeffrey M., 2010. "Estimating panel data models in the presence of endogeneity and selection," Journal of Econometrics, Elsevier, vol. 157(2), pages 375-380, August.
    18. Gregory McKee & Albert Kagan, 2016. "Determinants of recent structural change for small asset U.S. credit unions," Review of Quantitative Finance and Accounting, Springer, vol. 47(3), pages 775-795, October.
    19. Robert Jäckle & Oliver Himmler, 2010. "Health and Wages: Panel Data Estimates Considering Selection and Endogeneity," Journal of Human Resources, University of Wisconsin Press, vol. 45(2).
    20. Goddard, John & McKillop, Donal G. & Wilson, John O.S., 2023. "Who consumes the credit union subsidies?," Journal of Financial Stability, Elsevier, vol. 69(C).

    More about this item

    Keywords

    Credit Unions; Correlated Effects; Ordered Choice; Panel Data; Production; Returns to Scale; Switching Regression;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:71593. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.