What explains differences in the cost efficiency of banks? : an empirical study on Jordan

![CDATA[This paper investigates the level of cost efficiency in 17 Jordanian banks during the period 1996-2007 in which financial deregulation took place. The cost efficiency scores for each bank are obtained using the input-oriented DEA model. The cost efficiency is decomposed into allocative and technical efficiency levels. The allocative efficiency is quite high in the Jordanian banking sector. The average cost efficiency score of banks is found to be 0.74. The large banks are found most efficient in terms of cost efficiency (86%), allocative efficiency (92.7%) and technical efficiency (93%) during the sample period. The small banks rank second in terms of efficiency level. The cost efficiency of foreign banks is much lower than that of the domestic banks. While the cost efficiency shows a decline during the early and middle phase of deregulation, it shows large improvements in the final phase of financial deregulation in Jordan. Finally, we investigate the factors determining differences in cost efficiency between Jordanian banks. In our sample we find that bank size, loan to deposit ratio and good management practises positively affects banks cost efficiency and return on equity and number of bank branches negatively affects banks cost efficiency.]]