Calculating Cost Efficiency of Banking Sector in Iran and Evaluating the Impact of Bank's Marketing Performance on Cost Efficiency

Regarding the important role of banks as the financial mediator in economy, the current research estimates the degree of cost efficiency in the Iranian banks and therefore the average of cost efficiency in the country banking system in the period of 2000-2012 using stochastic frontier analysis, Cobb-Douglas function, and also maximum likelihood method. The results showed that cost efficiency of the Iranian banking system in this period is equal to 62.8 percent. Furthermore, the average efficiency in private banks is more than the average efficiency of state-owned banks and also those banks which were active in the public sector before and now are active in the private sector. The findings also showed a significant difference between the cost efficiency degree of the most efficient bank and the most inefficient one. In addition, this research examined the impact of banks’ marketing performance on their cost efficiency using panel data random effects model. The results showed that there is a negative significant relationship between bank deposit market share and cost efficiency in the Iranian banking system.