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To date, work concerned with the potential determinants of credit institutions’ profit inefficiency levels has addressed this issue in either a single-step or multi-step process. In the former, inefficiency scores are conditioned by region and bank-specific indicators, while in the latter, generated inefficiency scores are subsequently regressed on a set of potential correlates. The approach proposed here allows these issues to be explored jointly in a statistically consistent manner. The model is applied to a sample of banks from Ireland, the UK, Canada and Australia.
Fitzpatrick et al. (Tue,) studied this question.