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Efficiency Assessment and Determinants of Performance: A Study of Jordan’s Banks Using DEA and Tobit Regression

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  • Rasha Istaiteyeh

    (Department of Economics, Faculty of Business, The Hashemite University, Zarqa 13133, Jordan)

  • Maysa’a Munir Milhem

    (Department of Islamic Economics and Banking, Faculty of Sharia and Islamic Studies, Yarmouk University, Irbid 21163, Jordan)

  • Ahmed Elsayed

    (Independent Researcher, Amman 11931, Jordan)

Abstract

This comprehensive study explored the efficiency landscape of the Jordanian banking industry from 2006 to 2021, utilizing a dual-pronged approach. First, we assessed the efficiency scores of 15 commercial banks, comprising 13 conventional and 2 Islamic institutions, through data envelopment analysis (DEA). Secondly, we investigated the determinants influencing relative efficiency using the Tobit regression model. Our dataset, spanning 240 observations over 16 years, provides a nuanced examination of industry dynamics. DEA, specifically focusing on variable return to scale (VRS), unveils efficiency scores by accounting for scale inefficiencies. The research contributes insights into the operational efficacy of Jordanian banks and provides a robust methodology for understanding efficiency dynamics in the broader financial landscape. The results reveal significant relationships between return on assets, return on equity, GDP growth, and efficiency. Furthermore, it is noteworthy that Islamic banks demonstrate higher efficiency compared to conventional banks. Additionally, non-significant associations were observed with credit risk, bank size, and the ratio of loan loss provision over net income. The findings hold implications for policymakers, industry stakeholders, and researchers aiming to bolster the resilience and competitiveness of Jordan’s banking sector.

Suggested Citation

  • Rasha Istaiteyeh & Maysa’a Munir Milhem & Ahmed Elsayed, 2024. "Efficiency Assessment and Determinants of Performance: A Study of Jordan’s Banks Using DEA and Tobit Regression," Economies, MDPI, vol. 12(2), pages 1-18, February.
    • Handle: RePEc:gam:jecomi:v:12:y:2024:i:2:p:37-:d:1331749
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    References listed on IDEAS

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    4. Cook, Wade D. & Seiford, Larry M., 2009. "Data envelopment analysis (DEA) - Thirty years on," European Journal of Operational Research, Elsevier, vol. 192(1), pages 1-17, January.
    5. Maher Hasan & Jemma Dridi, 2011. "The Effects Of The Global Crisis On Islamic And Conventional Banks: A Comparative Study," Journal of International Commerce, Economics and Policy (JICEP), World Scientific Publishing Co. Pte. Ltd., vol. 2(02), pages 163-200.
    6. 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.
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    2. Jiayao Li & Rong Zhang & Yuntao Zou, 2024. "Analyzing the Shift in China’s Cultural Industries: From Economic Growth to Social Enrichment," Sustainability, MDPI, vol. 16(10), pages 1-21, May.

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