In the first chapter, we focus on explaining the U.S. commercial banking failuresduring the recent financial crisis. We employ the semi-parametric mixturehazard model (MHM) with both continuous and discrete time specifications tofirst, distinguish between troubled and healthy banks and second, to estimate theprobability and the timing of their failure. We combine the MHM with the stochasticfrontier model (SFM) to explore the role of managerial inefficiency on abank's longer term viability. We find that the discrete-time MHM which takesthe managerial inefficiencies into account fits well and dominates other competingspecifications by accurately predicting the timing of failures both in and out of thesample.The second chapter explores a new class of flexible cross-sectional parametricSFMs that impose an unobservable bound on the inefficiency term. We consider11doubly truncated normal, truncated half-normal, and truncated exponential distributionsto model the inefficiencies. We extend the models to the panel data settingand specify a time-varying inefficiency bound. We apply these models to analyzethe performance of the U.S. commercial banking industry during 1984-2009.In the third chapter, we address the issue of the "wrong" skewness of the leastsquares residuals that often arises in applied studies using the traditional SFM.Findings of "wrong" skewness imply that the SFM is misspecified and all firmsare fully efficient. Based on doubly truncated normal distribution that displaysboth positive and negative skewness, we prove that "wrong" skewness does notnecessarily imply that the SFM model is misspecified.The fourth chapter investigates the existence of heterogeneous technologies inthe U.S. commercial banking industry through the threshold effects estimationtechniques, modified to allow for time-varying effects. We employ the total assetsas a threshold variable and determine seven distinct technology-groups.In the fifth chapter, we describe the commercial banking data that are extractedfrom the quarterly Consolidated Reports of Condition and Income (Call Reports).We detail the construction of the key variables used in this thesis, which mainlycontain output quantities, input quantities and prices, bank-specific structural andgeographical characteristics, as well as a number of measures of risk.
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