Efficiency and Expense Preference in Philippines ’ Cooperative

is gratefully acknowledged. The usual disclaimer applies. This work is part of a larger research program that operates under the title of Microfinance: a Market Approach. The authors are grateful to Jocelyn Alma R. Badiola and Herbert Rizal Docena for excellent research assistance. The authors also wish to thank Ms. Ma. Chelo Manlagñit for carefully reviewing the draft. Abstract: This paper attempted to test whether efficient cooperative rural banks (CRBs) have a better control of their agency costs. We used two different concepts of efficiency, namely, cost efficiency and alternative profit efficiency, and found somewhat different results from both approaches. Using Stochastic Frontier Approach and Distribution Free Approach, we tested two different propositions. The first proposition is that an adequate corporate governance scheme should improve efficiency of CRBs. We failed to find very conclusive evidence that corporate governance theories apply to the Philippines ’ CRBs. However, the results confirmed both managers ’ compensation theory and large stakeholders theory. The second proposition is that agency costs should reduce efficiency of CRBs, and we found a much clearer relationship on that issue. As expected, most efficient CRBs ar