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Cost efficiency, production and value-added models in the analysis of bank branch performance

Author

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  • A S Camanho

    (Universidade do Porto)

  • R G Dyson

    (University of Warwick)

Abstract

This paper develops a framework for performance appraisal in the context of a bank branch network. A data envelopment analysis model is advocated that can identify both input and output inefficiencies from a cost minimization perspective. The model is then applied to the analysis of a bank branch network and the production and value-added approaches are deployed jointly to give a comprehensive assessment of bank branch efficiency. The sources of underperformance are identified and their managerial implications are explored.

Suggested Citation

  • A S Camanho & R G Dyson, 2005. "Cost efficiency, production and value-added models in the analysis of bank branch performance," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 56(5), pages 483-494, May.
    • Handle: RePEc:pal:jorsoc:v:56:y:2005:i:5:d:10.1057_palgrave.jors.2601839
    DOI: 10.1057/palgrave.jors.2601839
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    3. Putu Geniki Lavinia Natih, 2015. "Technical Efficiency Levels of Rural Banks (BPRs) in West Java: A Stochastic Frontier Approach," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 61, pages 223-240, December.
    4. S J Ho & S K Mallick, 2010. "The impact of information technology on the banking industry," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(2), pages 211-221, February.
    5. Portela, Maria C.A.S. & Thanassoulis, Emmanuel, 2010. "Malmquist-type indices in the presence of negative data: An application to bank branches," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1472-1483, July.
    6. Ivan Huljak & Reiner Martin & Diego Moccero, 2021. "Bank productivity in CESEE countries," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue Q2/21, pages 83-104.
    7. Wojciech Ćwięk & Andrzej Jaki & Łukasz Popławski & Tomasz Rojek, 2023. "Value-Creation Efficiency as a Decision-Making Basis and Its Assessment in the Financial Management of Energy Companies: Evidence from the Polish Capital Market," Sustainability, MDPI, vol. 15(2), pages 1-16, January.
    8. 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.
    9. Ahmad Nawaz, 2010. "Efficiency and Productivity of Microfinance: Incorporating the Role of Subsidies," Working Papers CEB 10-009.RS, ULB -- Universite Libre de Bruxelles.
    10. B Gutiérrez-Nieto & C Serrano-Cinca & C Mar Molinero, 2009. "Social efficiency in microfinance institutions," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 60(1), pages 104-119, January.
    11. J-L Hu & C-Y Fang, 2010. "Do market share and efficiency matter for each other? An application of the zero-sum gains data envelopment analysis," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 61(4), pages 647-657, April.
    12. Krzysztof Opolski & Piotr Modzelewski, 2009. "Quality and efficiency in the local government-methodological approach," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 22.
    13. Imad Bou-Hamad & Abdel Latef Anouze & Ibrahim H. Osman, 2022. "A cognitive analytics management framework to select input and output variables for data envelopment analysis modeling of performance efficiency of banks using random forest and entropy of information," Annals of Operations Research, Springer, vol. 308(1), pages 63-92, January.
    14. Zhao, Linlin & Zhu, Qingyuan & Zhang, Lin, 2021. "Regulation adaptive strategy and bank efficiency: A network slacks-based measure with shared resources," European Journal of Operational Research, Elsevier, vol. 295(1), pages 348-362.
    15. Fukuyama, Hirofumi & Shiraz, Rashed Khanjani, 2015. "Cost-effectiveness measures on convex and nonconvex technologies," European Journal of Operational Research, Elsevier, vol. 246(1), pages 307-319.
    16. LaPlante, A.E. & Paradi, J.C., 2015. "Evaluation of bank branch growth potential using data envelopment analysis," Omega, Elsevier, vol. 52(C), pages 33-41.
    17. Ivan Huljak & Reiner Martin & Diego Moccero, 2022. "The productivity growth of euro area banks," Journal of Productivity Analysis, Springer, vol. 58(1), pages 15-33, August.
    18. Mahmoudabadi, Mohammad Zarei & Emrouznejad, Ali, 2019. "Comprehensive performance evaluation of banking branches: A three-stage slacks-based measure (SBM) data envelopment analysis," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 359-376.
    19. E. Grigoroudis & E. Tsitsiridi & C. Zopounidis, 2013. "Linking customer satisfaction, employee appraisal, and business performance: an evaluation methodology in the banking sector," Annals of Operations Research, Springer, vol. 205(1), pages 5-27, May.
    20. Ozili, Peterson K, 2022. "Does economic policy uncertainty reduce financial inclusion?," MPRA Paper 111052, University Library of Munich, Germany.
    21. Paradi, Joseph C. & Zhu, Haiyan, 2013. "A survey on bank branch efficiency and performance research with data envelopment analysis," Omega, Elsevier, vol. 41(1), pages 61-79.
    22. Huljak, Ivan & Martin, Reiner & Moccero, Diego, 2019. "The cost-efficiency and productivity growth of euro area banks," Working Paper Series 2305, European Central Bank.
    23. Quaranta, Anna Grazia & Raffoni, Anna & Visani, Franco, 2018. "A multidimensional approach to measuring bank branch efficiency," European Journal of Operational Research, Elsevier, vol. 266(2), pages 746-760.

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