Discussion Paper 11/2007

Managers and efficiency in banking
11/2007
Author(s):
Karlo Kauko
2007. 34 pages.
Publisher:
Suomen Pankki
ISBN:
978-952-462-370-4
(Printed publication)
ISBN:
978-952-462-371-1
(Web publication)
ISSN:
0785-3572
(Printed publication)
ISSN:
1456-6184
(Web publication)




This paper presents evidence on the impact of managers on cost efficiency in banking. Stochastic frontier analysis is applied to a unique Finnish data set. The paper finds that manager age and education have strong yet complicated effects. University education enhances efficiency if the manager is running a large bank. Managing director changes are systematically followed by efficiency changes. Manager retirement typically causes an efficiency improvement, whereas other manager changes can either improve or weaken efficiency.