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Production Efficiency Differences between Large and Small Banks
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Management Involves the critical entrepreneurial function besides routine supervision. Since entrepreneurship is not an explicit input, its Impact on output gets refiected by the neutral efficiency parameter in a neoclassical production function framework. Employing the Cobb-Douglas production function, per (standard) branch Income differences between the 14 Large (LBG) and 13 Small (SBG) Bank Groups was accounted for in terms of differential neutral output efficiency, non-neutral resource efficiency use and resource input use per (standard) branch. During 1974-76, the LBG was found to have an edge over the SBC in neutral output efficiency which pattern reversed during 1984-86. The opposite was true with respect to the role of non-neutral resource efficiency use. The contribution of differential input use was in favour of the LBG though the size of the difference declined in convergence over the decade.
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