Managerial Efficiency and Bank Profitability

We study the relationship between managerial efficiency and bank profitability in the context of the U.S. banking sector. We utilize Stochastic Frontier Analysis based on a dataset of 4081 U.S. banks, spanning from 2009 to 2021. Two key findings emerge: firstly, geographical disparities exist in operating cost efficiency, with banks in more developed states demonstrating higher efficiency compared to those in less developed regions. Secondly, we document a significant positive relationship between managerial efficiency and profitability. Our findings are robust to alternative definitions of key variables and additional model specifications. The implications of these findings extend to policymakers, who should prioritize tailored interventions to enhance bank efficiency while considering geographical specificities.