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Financial Performance Evaluation

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  • Kausik Chaudhuri
  • Tirthankar Chowdhury

Abstract

We propose a different methodology to assess the financial performance of banks: Multiple Indicator, Multiple Cause (MIMIC) Variable model. We also consider other existing methodologies in the literature for estimation of bank performance. The result shows that the influence of funds in affecting the performance of banks, which have been considered a latent construct here, has been increasing over the years. The latent performance score of the public-sector banks is always higher than the private-sector banks. The same is obtained even if we use the semi-parametric stochastic frontier model: The public-sector (nationalised) banks perform better than the Indian private banks (domestic) in terms of advancing loans only. We justify the use of MIMIC model as an alternative by comparing rank correlation between the MIMIC and semi-parametric stochastic frontier model. Our results demonstrate that financial market development through deregulation creates a competitive and efficient banking sector. JEL Classification : C58, G21, G28

Suggested Citation

  • Kausik Chaudhuri & Tirthankar Chowdhury, 2012. "Financial Performance Evaluation," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 11(1), pages 1-36, April.
    • Handle: RePEc:sae:emffin:v:11:y:2012:i:1:p:1-36
    DOI: 10.1177/097265271101100101
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    References listed on IDEAS

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    3. Yusa, Anna & Hynie, Michaela & Mitchell, Scott, 2016. "Utilization of internal evaluation results by community mental health organizations: Credibility in different forms," Evaluation and Program Planning, Elsevier, vol. 54(C), pages 11-18.

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    More about this item

    Keywords

    MIMIC model; semi-parametric stochastic frontier model; deregulation; India;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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