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. If finds: (i) average X-inefficiency 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; (iii) 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.