X-efficiency in Australian banking: An empirical investigation

This paper empirically investigates the x-efficiency (technical and allocat ive) in Australian banks. A non-parametric method of Data Envelopment Analy sis (DEA) has been used to arrive at the efficiency scores. Banks in this s ample were found to have low levels of overall efficiency compared with the banks in the European countries and in the US. The results indicate that, as a source of overall inefficiency, the technical component was more impor tant than the allocative component. Thus, the inefficiency in Australian ba nks can be attributed to wasting of inputs (technical inefficiency) rather than choosing the incorrect input combinations (allocative inefficiency). D omestic banks were found to be more efficient than foreign owned banks. The study has important implications such as guiding the government policy reg arding deregulation and mergers. Since the study pinpoints the sources of i nefficiency, it would also help banks with strategic planning. (C) 2001 Els evier Science B.V. All rights reserved. JEL classification. D61; G21; G34.