Bank size and type impact on efficiency: Evidence from Ecuador

Abstract

Bank efficiency in Latin America has been limitedly analyzed in the literature. The objective of the paper is to analyze whether bank size and bank focus have any influence on efficiency in a setting like Ecuador in which banks are dominant and alternatives available in the financial system are very limited. Therefore, we proposed a two-stage Data Envelopment Analysis (DEA) approach, where in the first stage a DEA was performed to calculate the technical efficiency scores of Ecuadorian banks between 2002-2017, and in the second stage a population average probit model was applied to capture the impact of bank size and focus on efficiency using Average Marginal Effects. The results show that bank size has a positive and significant effect on efficiency; however, this effect has been decreasing over the window of analysis.