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Bank Size and Efficiency in Developing Countries: Intermediation Approach versus Value Added Approach and Impact of Non-Traditional Activities

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  • Sameh Charfeddine Karray
  • Jamel eddine Chichti

Abstract

Following the using a panel of 402 commercial banks from 15 developing countries over the period between 2000-2003 period, we assess the effect of bank size on technical efficiency and its two components: pure technical and scale efficiencies. We use in this study data envelopment approach (DEA) under specifications that allow the examination of the impact on results of the choice to measure banking activities with an intermediation or a value added approach, and of course a test for the relevance of including non traditional activities. Results indicate that examined banks suffer from serious problems of technical inefficiency involving a total average waste of resources that exceeds 46% of their actually levels. This inefficiency is mainly due to pure technical inefficiency for all size of banks except the largest banks for which we found high levels of scale inefficiency. The conducted test results show that the models with and without non-traditional activities are equivalent in terms of overall technical efficiency for banks of all size classes except for those of the smallest size. However, it is proved by these tests that the choice of an intermediation or a value added approach for measuring banking activity can significantly influence the generated average levels of technical efficiency for all bank sizes, but scale efficiency estimates appeared to be less sensitive to this choice.

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  • Sameh Charfeddine Karray & Jamel eddine Chichti, 2013. "Bank Size and Efficiency in Developing Countries: Intermediation Approach versus Value Added Approach and Impact of Non-Traditional Activities," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 3(5), pages 593-613.
    • Handle: RePEc:asi:aeafrj:v:3:y:2013:i:5:p:593-613:id:1034
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    1. Wang, Haibo & Sua, Lutfu & Dolar, Burak, 2023. "CAMELs-DEA in Assessing the Role of Major Factors in Achieving Higher Efficiency Levels: Evidence from Turkish Banks," SocArXiv qx59v, Center for Open Science.
    2. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Size, efficiency, market power, and economies of scale in the African banking sector," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 5(1), pages 1-22, December.
    3. Asongu, Simplice A & Odhiambo, Nicholas M, 2023. "Bank accounts, bank concentration and mobile money innovations," Working Papers 29949, University of South Africa, Department of Economics.
    4. Simplice A. Asongu & Nicholas M. Odhiambo, 2019. "Testing the Quiet Life Hypothesis in the African Banking Industry," Journal of Industry, Competition and Trade, Springer, vol. 19(1), pages 69-82, March.
    5. Boateng, Agyenim & Asongu, Simplice & Akamavi, Raphael & Tchamyou, Vanessa, 2018. "Information asymmetry and market power in the African banking industry," Journal of Multinational Financial Management, Elsevier, vol. 44(C), pages 69-83.
    6. Nidhi Agarwala & Sudarshan Maity & Tarak Nath Sahu, 2024. "Efficiency of Indian banks in fostering financial inclusion: an emerging economy perspective," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 29(2), pages 341-353, June.
    7. Tito Ondo Ela-Medja & Pilar Alberca, 2023. "Efficiency and Competitiveness of the Equatorial Guinean Financial Sector," Mathematics, MDPI, vol. 11(1), pages 1-21, January.
    8. Clement Olalekan Olaniyi & Titus Ayobami Ojeyinka & Xuan Vinh Vo & Mamdouh Abdulaziz Saleh Al‐Faryan, 2023. "Do business strategies vary across firms in the banking industry? New perspectives from the bank size–profitability nexus," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(1), pages 525-544, January.
    9. Wang, Wei & Huang, Jun & Wang, Haibo & Alidaee, Bahram, 2022. "Internal and external analysis of community banks' performance," International Review of Financial Analysis, Elsevier, vol. 84(C).
    10. Simplice Asongu & Rexon Nting & Joseph Nnanna, 2020. "Market power and cost efficiency in the African banking industry," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 47(6), pages 1247-1264, May.
    11. Lutfi, & Suyatno,, 2019. "Determinants of Bank Efficiency: Evidence from Regional Development Banks," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(3), pages 59-74.
    12. Ayobami Ojeyinka, Titus & Enisan Akinlo, Anthony, 2021. "Does Bank Size Affect Efficiency? Evidence From Commercial Banks In Nigeria," Ilorin Journal of Economic Policy, Department of Economics, University of Ilorin, vol. 8(1), pages 79-100, June.
    13. Hai-Yen Chang & Lien-Wen Liang & Yu-Luan Liu, 2021. "Using Environmental, Social, Governance (ESG) and Financial Indicators to Measure Bank Cost Efficiency in Asia," Sustainability, MDPI, vol. 13(20), pages 1-20, October.
    14. Simplice A. Asongu & Sara Le Roux & Vanessa S. Tchamyou, 2019. "Essential information sharing thresholds for reducing market power in financial access: a study of the African banking industry," Journal of Banking Regulation, Palgrave Macmillan, vol. 20(1), pages 34-50, March.
    15. Chen, Yu-Lun & Chuang, Yi-Wei & Huang, Hong-Gia & Shih, Jhuan-Yu, 2020. "The value of implementing enterprise risk management: Evidence from Taiwan’s financial industry," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    16. Salah Mohammed Abdulahi & Mekonnen Kumlachew Yitayaw & Habtamu Legese Feyisa & Wondmagegn Biru Mamo, 2023. "Factor affecting technical efficiency of the banking sector: Evidence from Ethiopia," Cogent Economics & Finance, Taylor & Francis Journals, vol. 11(1), pages 2186039-218, December.
    17. Asongu, Simplice A. & Biekpe, Nicholas, 2018. "ICT, information asymmetry and market power in African banking industry," Research in International Business and Finance, Elsevier, vol. 44(C), pages 518-531.
    18. Dhananjay Bapat, 2018. "Profitability drivers for Indian banks: a dynamic panel data analysis," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 8(4), pages 437-451, December.
    19. Said-Nour Samake, 2022. "Prudential Regulation and Bank Efficiency : Evidence from WAEMU Zone," Working Papers hal-03540209, HAL.
    20. Kuessi, Richard & Nantob, N'Yilimon & Aguey, Segnon & Couchoro, Mawuli Kodjovi, 2023. "Competition and banking efficiency in the WAEMU: The role of multinationals and institutions," International Economics, Elsevier, vol. 175(C), pages 45-62.
    21. Nan Zhu & Wasi Ul Hassan Shah & Muhammad Abdul Kamal & Rizwana Yasmeen, 2021. "Efficiency and productivity analysis of Pakistan's banking industry: A DEA approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6362-6374, October.

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