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Non-oriented slack-based decompositions of profit change with an application to Taiwanese banking

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  • Juo, Jia-Ching
  • Fu, Tsu-Tan
  • Yu, Ming-Miin
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    Abstract

    A change in profit can originate from the output side and the input side. In the spirit of work by Tone [1] and follows Grifell-Tatjé and Lovell's [2], we propose a non-oriented slacks-based measure (SBM) model to decompose the change in the operating profit into various meaningful components: quantity effect and a price effect. The quantity effect can be decomposed into a productivity effect and an activity effect. The productivity effect is further decomposed into a technical effect and an operating efficiency effect. Both of them include an output side, which will result in a change in revenue and an input side which will result in a change in cost. The activity effect can be decomposed into a product mix effect, a resource mix effect and a scale effect. We illustrate our decompositions to the Taiwanese banking sector during the period 1994–2002 using the average of the base and current prices to evaluate these contributions. We find ignoring input side effects on the decomposition of profit changes would cause misleading results in managerial issues.

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    Bibliographic Info

    Article provided by Elsevier in its journal Omega.

    Volume (Year): 40 (2012)
    Issue (Month): 5 ()
    Pages: 550-561

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    Handle: RePEc:eee:jomega:v:40:y:2012:i:5:p:550-561

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    Related research

    Keywords: Profit change; Decomposition; Data envelopment analysis (DEA); Slacks; Slacks-based measure (SBM);

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    Cited by:
    1. Bretholt, Abraham & Pan, Jeh-Nan, 2013. "Evolving the latent variable model as an environmental DEA technology," Omega, Elsevier, vol. 41(2), pages 315-325.
    2. Kao, Chiang & Liu, Shiang-Tai, 2014. "Measuring performance improvement of Taiwanese commercial banks under uncertainty," European Journal of Operational Research, Elsevier, vol. 235(3), pages 755-764.
    3. Kao, Chiang & Liu, Shiang-Tai, 2014. "Multi-period efficiency measurement in data envelopment analysis: The case of Taiwanese commercial banks," Omega, Elsevier, vol. 47(C), pages 90-98.
    4. Yang, Xiaopeng & Morita, Hiroshi, 2013. "Efficiency improvement from multiple perspectives: An application to Japanese banking industry," Omega, Elsevier, vol. 41(3), pages 501-509.

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