Philippine Standard time

Efficiency and Expense Preference in the Philippines' Cooperative Rural Banks

DP 2002-12
2002

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 time(s).

  1. Moreno, Frede G., 2004 "Good governance in microcredit strategy for poverty reduction: Focus on western Mindanao, Philippines" , ZBW - Leibniz Information Centre for Economics

  2. Hassan, M. Kabir and Benito Sanchez, 2009 "Efficiency analysis of microfinance institutions in developing countries" , Indiana State University, Scott College of Business, Networks Financial Institute

  3. Hermes, Niels, Robert Lensink, and Aljar Meesters, 2008 "Outreach and Efficiency of Microfinance Institutions" , University of Groningen, Research Institute SOM (Systems, Organisations and Management)

  4. Hermes, Niels, Robert Lensink, and Aljar Meesters, 2011 "Outreach and efficiency of microfinance institutions" , Elsevier

  5. Solhi, Sanae and Sidi Mohamed Rigar, 2014 "Pérennité et efficience des institutions de microfinance dans la région mena" , Economic Research Forum

  6. Yimga, Jules, 2018 "Microfinance expansion and its effects on cost efficiency" , Elsevier

  7. Mongid, Abdul and Izah Mohd Tahir, 2018 "Technical and scale efficiency of Indonesian rural banks" , Center for Open Science

  8. Lonbani, Delaram Najmaei and Bram De Rock, 2020 "The performance of microfinance institutions: An analysis of the local and legal constraints" , ULB -- Universite Libre de Bruxelles

  9. Fall, François, Al-mouksit Akim, and Harouna Wassongma, 2018 "DEA and SFA research on the efficiency of microfinance institutions: A meta-analysis" , Elsevier

  10. Fall, François-Seck, Al-Mouksit Akim, and Harouna Wassongma, 2018 "DEA and SFA research on the efficiency of microfinance institutions: A meta-analysis" , HAL

  11. Muneer Babu M., 2016 "Macroeconomic determinants of technological change in Indian microfinance institutions" , International Management Institute

  12. Soltane Bassem, Ben, 2014 "Total factor productivity change of MENA microfinance institutions: A Malmquist productivity index approach" , Elsevier

  13. Desrochers, Martin and Klaus P. Fischer, 2005 "The power of networks: Integration and financial cooperative performance" , Wiley Blackwell

  14. Desrochers, Martin and Klaus P. Fischer, 2005 "The power of networks: Integration and financial cooperative performance" , CIRPEE

  15. Haq, Mamiza, Michael Skully, and Shams Pathan, 2010 "Efficiency of microfinance institutions: A data envelopment analysis" , Springer, Japanese Association of Financial Economics and Engineering


Related Publications

Financial Flexibility, Corporate Governance, and Enterprise Value among A-share Listed Companies in China

CPU
2023-7
2023
0 Downloads

Network Structure of Financial Institutions in the Philippines: Insights on Corporate Control and Competition

PIDS
DP 2024-17
2024
7 Downloads
Contributor
Philippine Institute for Development Studies
Authors
Lamberte, Mario B. Desrochers, Martin
Keywords
agency costs; corporate governance; efficiency
Cite
Downloads

957

Since
Jul 10, 2013

More Publications from Philippine Institute for Development Studies
Research and Development and Technology in the Philippines
2003
57,820 DOWNLOADS
Senior High School and the Labor Market: Perspectives of Grade 12 Students and Human Resource Officers
2018
28,727 DOWNLOADS
Sustainable Tourism: Challenges for the Philippines
2005
24,343 DOWNLOADS
Special Issues in Agriculture
2004
23,410 DOWNLOADS
Globalization, Governance, and the Philippine State
2011
23,061 DOWNLOADS
View More Publications