An analysis of the relevance of off-balance sheet items in explaining productivity change in European banking

ISSN： 1466-4305

Source： Applied Financial Economics, Vol.15, Iss.15, 2005-10, pp. : 1053-1061

Disclaimer: Any content in publications that violate the sovereignty, the constitution or regulations of the PRC is not accepted or approved by CNPIEC.

Previous Menu Next

Abstract

The 1990s have witnessed a significant growth in bank income generated through non-traditional activities, especially for large EU universal banking institutions. Using the non-parametric Malmquist methodology this study analyses the impact of the inclusion of off-balance sheet (OBS) business in the definition of banks' output when estimating total factor productivity change indexes. Whereas the results reinforce the prevalent view in the recent literature, indicating that the exclusion of non-traditional activities leads to a misspecification of banks' output, the impact of the inclusion of these activities varies. Overall, the inclusion of OBS items results in an increase in estimated productivity levels for all countries under study. However, the impact seems to be the biggest on technological change rather than efficiency change.