3.2.2 Stochastic Frontier Analysis
After estimating the cost and profit efficiency of the banks, we also examine possible factors
that influence both estimates. This has not yet been done for Indonesian banks. Some studies
have used size as a factor that influences efficiency scores. For example, Pitt and Lee (1981),
Megistae (1996), and Brada, King and Ying Ma (1997) found that firm size has a positive
relationship with technical efficiency. On the other hand, studies by Chen and Tang (1987),
Hill and Kalirajan (1993) found no relationship between size and technical efficiency. In
addition, a study by Moudos et al. (2002) indicate that bank size influences cost and profit
efficiency. In addition to DEA, this study thus able to use the SFA methodology to estimate
cost and profit efficiency of the banks.