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A productivity analysis of Central and Eastern European banking taking into account risk decomposition and environmental variables

  • Kenjegalieva, Karligash A.
  • Simper, Richard

This paper develops a Luenberger productivity index that is applied to a technology where desirable and undesirable outputs are jointly produced and are possibly negative. The components of this Luenberger productivity index - the efficiency change and the components of the technological shift - are then decomposed into factors determined by the technology, adjusted and then for [`]risk and environment', [`]risk management' and [`]environmental effects'. The method is applied to Central and Eastern European banks operating during 1998-2003 utilising three alternative input/output methodologies (intermediation, production and profit/revenue). Additionally, the comparative analysis of the sensitivity of the productivity indices in the choice of the methodologies is undertaken using statistical and kernel density tests. It is found that the main driver of productivity change in Central and Eastern European banks is technological improvement. That is, in the beginning of the analysed period, the results hinged on the banks ability to capitalise on advanced technology and successfully take into account [`]risk and environmental' factors. Whereas, in later periods, one of the most important factors of technological improvement/decline was [`]risk management'. Finally, the tests employed confirm previous findings, such as Pasiouras (2008) in this journal, that different input/output methodologies produce statistically different productivity results. Finally, we find that external factors, such as [`]risk in the economy' and banking production, and a [`]corruption perception' affect the productivity of banks.

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Article provided by Elsevier in its journal Research in International Business and Finance.

Volume (Year): 25 (2011)
Issue (Month): 1 (January)
Pages: 26-38

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Handle: RePEc:eee:riibaf:v:25:y:2011:i:1:p:26-38
Contact details of provider: Web page: http://www.elsevier.com/locate/ribaf

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  1. Maniadakis, Nikolaos & Thanassoulis, Emmanuel, 2004. "A cost Malmquist productivity index," European Journal of Operational Research, Elsevier, vol. 154(2), pages 396-409, April.
  2. Luenberger, David G., 1992. "Benefit functions and duality," Journal of Mathematical Economics, Elsevier, vol. 21(5), pages 461-481.
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  4. Emili Tortosa-Ausina, 2002. "Bank Cost Efficiency and Output Specification," Journal of Productivity Analysis, Springer, vol. 18(3), pages 199-222, November.
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  7. Leigh M. Drake & Maximilian J. B. Hall & Richard Simper, 2005. "The Impact of Macroeconomic and Regulatory Factors on Bank Efficiency: A Non-Parametric Analysis of Hong Kong's Banking System," Working Papers 012005, Hong Kong Institute for Monetary Research.
  8. Jean-Philippe Boussemart & Walter Briec & Kristiaan Kerstens & Jean-Christophe Poutineau, 2003. "Luenberger and Malmquist Productivity Indices: Theoretical Comparisons and Empirical Illustration," Bulletin of Economic Research, Wiley Blackwell, vol. 55(4), pages 391-405, October.
  9. Benston, George J & Smith, Clifford W, Jr, 1976. "A Transactions Cost Approach to the Theory of Financial Intermediation," Journal of Finance, American Finance Association, vol. 31(2), pages 215-31, May.
  10. Chambers, Robert G. & Fare, Rolf & Grosskopf, Shawna, 1996. "Productivity Growth in APEC Countries," Working Papers 197843, University of Maryland, Department of Agricultural and Resource Economics.
  11. Tortosa-Ausina, Emili, 2002. "Exploring efficiency differences over time in the Spanish banking industry," European Journal of Operational Research, Elsevier, vol. 139(3), pages 643-664, June.
  12. 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 1251-66, September.
  13. Jose Pastor, 2002. "Credit risk and efficiency in the European banking system: A three-stage analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 12(12), pages 895-911.
  14. Tortosa-Ausina, Emili, 2003. "Nontraditional activities and bank efficiency revisited: a distributional analysis for Spanish financial institutions," Journal of Economics and Business, Elsevier, vol. 55(4), pages 371-395.
  15. Walter Briec & Benoit Dervaux & Hervé Leleu, 2003. "Aggregation of Directional Distance Functions and Industrial Efficiency," Journal of Economics, Springer, vol. 79(3), pages 237-261, 07.
  16. Pasiouras, Fotios, 2008. "Estimating the technical and scale efficiency of Greek commercial banks: The impact of credit risk, off-balance sheet activities, and international operations," Research in International Business and Finance, Elsevier, vol. 22(3), pages 301-318, September.
  17. R. Färe & D. Primont, 2003. "Luenberger Productivity Indicators: Aggregation Across Firms," Journal of Productivity Analysis, Springer, vol. 20(3), pages 425-435, November.
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