IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v259y2017i2p721-732.html
   My bibliography  Save this article

Modelling bank performance: A network DEA approach

Author

Listed:
  • Fukuyama, Hirofumi
  • Matousek, Roman

Abstract

In this paper, we develop a bank network revenue function to evaluate banks’ network revenue performance. The bank network revenue function, which extends the environmental revenue function and the two-stage network cost function, is constructed as the difference between total revenue and the reserves for possible loan losses to incorporate the roles played by non-performing loans in bank production. The second part of the paper then applies Nerlove's revenue inefficiency model. We consider revenue maximization in two stages. We apply this function to Japanese banks operating from September 2000 to March 2013.

Suggested Citation

  • Fukuyama, Hirofumi & Matousek, Roman, 2017. "Modelling bank performance: A network DEA approach," European Journal of Operational Research, Elsevier, vol. 259(2), pages 721-732.
    • Handle: RePEc:eee:ejores:v:259:y:2017:i:2:p:721-732
    DOI: 10.1016/j.ejor.2016.10.044
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377221716308785
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.ejor.2016.10.044?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Hirofumi Fukuyama & William Weber, 2015. "Measuring Japanese bank performance: a dynamic network DEA approach," Journal of Productivity Analysis, Springer, vol. 44(3), pages 249-264, December.
    2. Drake, Leigh & Hall, Maximilian J.B. & Simper, Richard, 2009. "Bank modelling methodologies: A comparative non-parametric analysis of efficiency in the Japanese banking sector," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(1), pages 1-15, February.
    3. Lepetit, Laetitia & Strobel, Frank, 2013. "Bank insolvency risk and time-varying Z-score measures," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 73-87.
    4. Park, Kang H. & Weber, William L., 2006. "A note on efficiency and productivity growth in the Korean Banking Industry, 1992-2002," Journal of Banking & Finance, Elsevier, vol. 30(8), pages 2371-2386, August.
    5. Holod, Dmytro & Lewis, Herbert F., 2011. "Resolving the deposit dilemma: A new DEA bank efficiency model," Journal of Banking & Finance, Elsevier, vol. 35(11), pages 2801-2810, November.
    6. Joe Peek & Eric S. Rosengren, 2005. "Unnatural Selection: Perverse Incentives and the Misallocation of Credit in Japan," American Economic Review, American Economic Association, vol. 95(4), pages 1144-1166, September.
    7. Fare, Rolf & Grosskopf, Shawna & Weber, William L., 2006. "Shadow prices and pollution costs in U.S. agriculture," Ecological Economics, Elsevier, vol. 56(1), pages 89-103, January.
    8. Fujii, Hidemichi & Managi, Shunsuke & Matousek, Roman, 2014. "Indian bank efficiency and productivity changes with undesirable outputs: A disaggregated approach," Journal of Banking & Finance, Elsevier, vol. 38(C), pages 41-50.
    9. Berger, Allen N. & Mester, Loretta J., 1997. "Inside the black box: What explains differences in the efficiencies of financial institutions?," Journal of Banking & Finance, Elsevier, vol. 21(7), pages 895-947, July.
    10. Mamatzakis, Emmanuel & Matousek, Roman & Vu, Anh Nguyet, 2016. "What is the impact of bankrupt and restructured loans on Japanese bank efficiency?," Journal of Banking & Finance, Elsevier, vol. 72(S), pages 187-202.
    11. Berger, Allen N. & DeYoung, Robert, 1997. "Problem loans and cost efficiency in commercial banks," Journal of Banking & Finance, Elsevier, vol. 21(6), pages 849-870, June.
    12. Charnes, A. & Cooper, W. W. & Huang, Z. M. & Sun, D. B., 1990. "Polyhedral Cone-Ratio DEA Models with an illustrative application to large commercial banks," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 73-91.
    13. George Assaf, A. & Matousek, Roman & Tsionas, Efthymios G., 2013. "Turkish bank efficiency: Bayesian estimation with undesirable outputs," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 506-517.
    14. Berg, Sigbjorn Atle & Forsund, Finn R & Jansen, Eilev S, 1992. " Malmquist Indices of Productivity Growth during the Deregulation of Norwegian Banking, 1980-89," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(0), pages 211-228, Supplemen.
    15. Drake, Leigh & Hall, Maximilian J. B., 2003. "Efficiency in Japanese banking: An empirical analysis," Journal of Banking & Finance, Elsevier, vol. 27(5), pages 891-917, May.
    16. McKillop, Donal G. & Glass, J. Colin & Morikawa, Yukio, 1996. "The composite cost function and efficiency in giant Japanese banks," Journal of Banking & Finance, Elsevier, vol. 20(10), pages 1651-1671, December.
    17. Ching-Cheng Chang, 1999. "The Nonparametric Risk-Adjusted Efficiency Measurement: An Application to Taiwan's Major Rural Financial Intermediaries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(4), pages 902-913.
    18. Jiménez, Gabriel & Ongena, Steven & Peydró, José-Luis & Saurina, Jesús, 2012. "Credit Supply and Monetary Policy: Identifying the Bank Balance-Sheet Channel with Loan Applications," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 102(5), pages 2301-2326.
    19. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
    20. Barros, Carlos Pestana & Managi, Shunsuke & Matousek, Roman, 2012. "The technical efficiency of the Japanese banks: Non-radial directional performance measurement with undesirable output," Omega, Elsevier, vol. 40(1), pages 1-8, January.
    21. Mircea Epure & Esteban Lafuente, 2015. "Monitoring bank performance in the presence of risk," Journal of Productivity Analysis, Springer, vol. 44(3), pages 265-281, December.
    22. George E. Halkos & Roman Matousek & Nickolaos G. Tzeremes, 2016. "Pre-evaluating technical efficiency gains from possible mergers and acquisitions: evidence from Japanese regional banks," Review of Quantitative Finance and Accounting, Springer, vol. 46(1), pages 47-77, January.
    23. Simar, Leopold & Wilson, Paul W., 2007. "Estimation and inference in two-stage, semi-parametric models of production processes," Journal of Econometrics, Elsevier, vol. 136(1), pages 31-64, January.
    24. Frank Packer & Haibin Zhu, 2012. "Loan loss provisioning practices of Asian banks," BIS Working Papers 375, Bank for International Settlements.
    25. George Assaf, A. & Barros, Carlos P. & Matousek, Roman, 2011. "Productivity and efficiency analysis of Shinkin banks: Evidence from bootstrap and Bayesian approaches," Journal of Banking & Finance, Elsevier, vol. 35(2), pages 331-342, February.
    26. Liu, Junming & Tone, Kaoru, 2008. "A multistage method to measure efficiency and its application to Japanese banking industry," Socio-Economic Planning Sciences, Elsevier, vol. 42(2), pages 75-91, June.
    27. Resti, Andrea, 1997. "Evaluating the cost-efficiency of the Italian Banking System: What can be learned from the joint application of parametric and non-parametric techniques," Journal of Banking & Finance, Elsevier, vol. 21(2), pages 221-250, February.
    28. Uchida, Hirofumi & Satake, Mitsuhiko, 2009. "Market discipline and bank efficiency," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(5), pages 792-802, December.
    29. Drake, Leigh & Hall, Maximilian J.B. & Simper, Richard, 2006. "The impact of macroeconomic and regulatory factors on bank efficiency: A non-parametric analysis of Hong Kong's banking system," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1443-1466, May.
    30. Mester, Loretta J., 1996. "A study of bank efficiency taking into account risk-preferences," Journal of Banking & Finance, Elsevier, vol. 20(6), pages 1025-1045, July.
    31. Timo Kuosmanen, 2005. "Weak Disposability in Nonparametric Production Analysis with Undesirable Outputs," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 87(4), pages 1077-1082.
    32. Fukuyama, Hirofumi & Matousek, Roman, 2011. "Efficiency of Turkish banking: Two-stage network system. Variable returns to scale model," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(1), pages 75-91, February.
    33. Kauko, Karlo, 2009. "Managers and efficiency in banking," Journal of Banking & Finance, Elsevier, vol. 33(3), pages 546-556, March.
    34. Montgomery, Heather & Shimizutani, Satoshi, 2009. "The effectiveness of bank recapitalization policies in Japan," Japan and the World Economy, Elsevier, vol. 21(1), pages 1-25, January.
    35. Fukuyama, Hirofumi & Weber, William L., 2010. "A slacks-based inefficiency measure for a two-stage system with bad outputs," Omega, Elsevier, vol. 38(5), pages 398-409, October.
    36. Rolf Färe & Shawna Grosskopf, 2003. "Nonparametric Productivity Analysis with Undesirable Outputs: Comment," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(4), pages 1070-1074.
    37. Ahmed, Anwer S. & Takeda, Carolyn & Thomas, Shawn, 1999. "Bank loan loss provisions: a reexamination of capital management, earnings management and signaling effects," Journal of Accounting and Economics, Elsevier, vol. 28(1), pages 1-25, November.
    38. Paradi, Joseph C. & Rouatt, Stephen & Zhu, Haiyan, 2011. "Two-stage evaluation of bank branch efficiency using data envelopment analysis," Omega, Elsevier, vol. 39(1), pages 99-109, January.
    39. Altunbas, Yener & Liu, Ming-Hau & Molyneux, Philip & Seth, Rama, 2000. "Efficiency and risk in Japanese banking," Journal of Banking & Finance, Elsevier, vol. 24(10), pages 1605-1628, October.
    40. Fukuyama, Hirofumi & Weber, William L., 2005. "Estimating output gains by means of Luenberger efficiency measures," European Journal of Operational Research, Elsevier, vol. 164(2), pages 535-547, July.
    41. Hoshi, Takeo & Kashyap, Anil K, 2010. "Will the U.S. bank recapitalization succeed? Eight lessons from Japan," Journal of Financial Economics, Elsevier, vol. 97(3), pages 398-417, September.
    42. Resti, Andrea, 1998. "Regulation Can Foster Mergers, Can Mergers Foster Efficiency? The Italian Case," Journal of Economics and Business, Elsevier, vol. 50(2), pages 157-169, March.
    43. Fare, Rolf, et al, 1989. "Multilateral Productivity Comparisons When Some Outputs Are Undesirable: A Nonparametric Approach," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 90-98, February.
    44. Neil Kellard & Denise Osborn & Jerry Coakley & Dimitris K. Chronopoulos & Claudia Girardone & John C. Nankervis, 2015. "Double Bootstrap Confidence Intervals in the Two-Stage DEA Approach," Journal of Time Series Analysis, Wiley Blackwell, vol. 36(5), pages 653-662, September.
    45. Chambers, Robert G. & Chung, Yangho & Fare, Rolf, 1996. "Benefit and Distance Functions," Journal of Economic Theory, Elsevier, vol. 70(2), pages 407-419, August.
    46. Fethi, Meryem Duygun & Pasiouras, Fotios, 2010. "Assessing bank efficiency and performance with operational research and artificial intelligence techniques: A survey," European Journal of Operational Research, Elsevier, vol. 204(2), pages 189-198, July.
    47. Akther, Syed & Fukuyama, Hirofumi & Weber, William L., 2013. "Estimating two-stage network Slacks-based inefficiency: An application to Bangladesh banking," Omega, Elsevier, vol. 41(1), pages 88-96.
    48. Sealey, Calvin W, Jr & Lindley, James T, 1977. "Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions," Journal of Finance, American Finance Association, vol. 32(4), pages 1251-1266, September.
    49. Lepetit, Laetitia & Strobel, Frank, 2013. "Bank insolvency risk and time-varying Z-score measures," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 25(C), pages 73-87.
    50. George Halkos & Roman Matousek & Nickolaos Tzeremes, 2016. "Pre-evaluating technical efficiency gains from possible mergers and acquisitions: evidence from Japanese regional banks," Review of Quantitative Finance and Accounting, Springer, vol. 46(1), pages 47-77, January.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Fukuyama, Hirofumi & Matousek, Roman, 2018. "Nerlovian revenue inefficiency in a bank production context: Evidence from Shinkin banks," European Journal of Operational Research, Elsevier, vol. 271(1), pages 317-330.
    2. Mamatzakis, Emmanuel & Matousek, Roman & Vu, Anh Nguyet, 2016. "What is the impact of bankrupt and restructured loans on Japanese bank efficiency?," Journal of Banking & Finance, Elsevier, vol. 72(S), pages 187-202.
    3. Gulati, Rachita, 2022. "Global and local banking crises and risk-adjusted efficiency of Indian banks: Are the impacts really perspective-dependent?," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 23-39.
    4. Boussemart, Jean-Philippe & Leleu, Hervé & Shen, Zhiyang & Vardanyan, Michael & Zhu, Ning, 2019. "Decomposing banking performance into economic and credit risk efficiencies," European Journal of Operational Research, Elsevier, vol. 277(2), pages 719-726.
    5. Vaneet Bhatia & Sankarshan Basu & Subrata Kumar Mitra & Pradyumna Dash, 2018. "A review of bank efficiency and productivity," OPSEARCH, Springer;Operational Research Society of India, vol. 55(3), pages 557-600, November.
    6. Kourtzidis, Stavros & Matousek, Roman & Tzeremes, Nickolaos G., 2021. "Modelling a multi-period production process: Evidence from the Japanese regional banks," European Journal of Operational Research, Elsevier, vol. 294(1), pages 327-339.
    7. Hirofumi Fukuyama & William L. Weber, 2017. "Japanese Bank Productivity, 2007–2012: A Dynamic Network Approach," Pacific Economic Review, Wiley Blackwell, vol. 22(4), pages 649-676, October.
    8. Bansal, Pooja & Kumar, Sunil & Mehra, Aparna & Gulati, Rachita, 2022. "Developing two dynamic Malmquist-Luenberger productivity indices: An illustrated application for assessing productivity performance of Indian banks," Omega, Elsevier, vol. 107(C).
    9. Fukuyama, Hirofumi & Matousek, Roman & Tzeremes, Nickolaos G., 2020. "A Nerlovian cost inefficiency two-stage DEA model for modeling banks’ production process: Evidence from the Turkish banking system," Omega, Elsevier, vol. 95(C).
    10. Besstremyannaya, Galina, 2017. "Heterogeneous effect of the global financial crisis and the Great East Japan Earthquake on costs of Japanese banks," Journal of Empirical Finance, Elsevier, vol. 42(C), pages 66-89.
    11. Mamatzakis, Emmanuel & matousek, roman & vu, anh, 2019. "The interplay between problem loans and Japanese bank productivity," MPRA Paper 92960, University Library of Munich, Germany.
    12. Hirofumi Fukuyama & William Weber, 2015. "Measuring Japanese bank performance: a dynamic network DEA approach," Journal of Productivity Analysis, Springer, vol. 44(3), pages 249-264, December.
    13. George Assaf, A. & Matousek, Roman & Tsionas, Efthymios G., 2013. "Turkish bank efficiency: Bayesian estimation with undesirable outputs," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 506-517.
    14. Barros, Carlos Pestana & Managi, Shunsuke & Matousek, Roman, 2012. "The technical efficiency of the Japanese banks: Non-radial directional performance measurement with undesirable output," Omega, Elsevier, vol. 40(1), pages 1-8, January.
    15. Fukuyama, Hirofumi & Matousek, Roman & Tzeremes, Nickolaos G., 2022. "Bank production with nonperforming loans: A minimum distance directional slack inefficiency approach," Omega, Elsevier, vol. 113(C).
    16. Pooja Bansal & Aparna Mehra & Sunil Kumar, 2022. "Dynamic Metafrontier Malmquist–Luenberger Productivity Index in Network DEA: An Application to Banking Data," Computational Economics, Springer;Society for Computational Economics, vol. 59(1), pages 297-324, January.
    17. Mai, Nhat Chi, 2015. "Efficiency of the banking system in Vietnam under financial liberalization," OSF Preprints qsf6d, Center for Open Science.
    18. Richard Simper & Maximilian J. B. Hall & WenBin Liu & Valentin Zelenyuk & Zhongbao Zhou, 2017. "How relevant is the choice of risk management control variable to non-parametric bank profit efficiency analysis? The case of South Korean banks," Annals of Operations Research, Springer, vol. 250(1), pages 105-127, March.
    19. Louhichi, Awatef & Boujelbene, Younes, 2020. "Credit risk pricing and the rationality of lending decision-making within dual banking systems: A parametric approach," Economic Systems, Elsevier, vol. 44(1).
    20. Richard Simper & Maximilian J.B. Hall & Wenbin B. Liu & Valentin Zelenyuk & Zhongbao Zhou, 2014. "How Relevant is the Choice of Risk Management Control Variable to Non-parametric Bank Profit Efficiency Analysis?," CEPA Working Papers Series WP122014, School of Economics, University of Queensland, Australia.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:ejores:v:259:y:2017:i:2:p:721-732. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/eor .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.