Date Published:
Jun 01, 2002
Focus Area(s):
Code:
DP 2002-12

This paper attempted to test whether efficient cooperative rural banks (CRBs) have a better control of their agency costs. We used two different concepts of efficiency, namely, cost efficiency and alternative profit efficiency, and found somewhat different results from both approaches. Using Stochastic Frontier Approach and Distribution Free Approach, we tested two different propositions. The first proposition is that an adequate corporate governance scheme should improve efficiency of CRBs. We failed to find very conclusive evidence that corporate governance theories apply to the Philippines’ CRBs. However, the results confirmed both managers’ compensation theory and large stakeholders theory. The second proposition is that agency costs should reduce efficiency of CRBs, and we found a much clearer relationship on that issue. As expected, most efficient CRBs are characterized by a better control of agency costs. These results are in accordance with previous studies on shirking behavior among mutual financial intermediaries. We also found that rural CRBs are most profit efficient, despite their somewhat normal cost-efficiency, a manifestation that they are able to charge higher fees for the quality of services they offer. Large CRBs are not able to pass their higher costs to customers through higher fees. We found that small CRBs might have a better interest rate policy, that is, they offer lower rates on both loans and deposits.

Citations

This publication has been cited 15 times

In other Publications
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  8. Hermes, Niels, Robert Lensink, and Aljar Meesters. 2008. Outreach and Efficiency of Microfinance Institutions. Research Report 08002. University of Groningen, Research Institute SOM (Systems, Organisations and Management).
  9. Lonbani, Delaram Najmaei and Bram De Rock. 2020. The performance of microfinance institutions: An analysis of the local and legal constraints. Working Papers CEB 20-011. ULB -- Universite Libre de Bruxelles.
  10. Mongid, Abdul and Izah Mohd Tahir. 2018. Technical and scale efficiency of Indonesian rural banks. INA-Rxiv w9j54. Center for Open Science.
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  15. Yimga, Jules. 2018. Microfinance expansion and its effects on cost efficiency. The Quarterly Review of Economics and Finance, 69(C), 205-216. Elsevier.


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