X‐Efficiency of Australian Permanent Building Societies, 1974–1990*

This study examines X‐efficiency of Australian Permanent Building Societies (PBSs) using the stochastic econometric frontier (SEF) approach and compares the results with those derived from an analysis of accounting ratios. It finds: (i) average X‐inefftciency relative to the stochastic cost frontier of 25 per cent both pre‐ and post‐deregulation of the Australian financial system; (ii) when the expense to total assets ratio is averaged over seven to ten years it produces very similar efficiency rankings to the SEF approach; (Hi) PBSs in NSW and Western Australia are more efficient than those in other States; and (iv) Cost function dynamics has little effect on PBS X‐efficiency.