Evolution of Bank Efficiency in Brazil: A DEA Approach

This paper investigates cost, technical and allocative efficiency for Brazilian banks in the recent period (2000-2007). The empirical results imply that non-performing loans is an important indicator of efficiency level, as well as market share. Evidence is in favor of the home field advantage hypothesis since foreign banks are less cost efficient than their domestic counterparts. Furthermore, the agency theory hypothesis is not accepted as state-owned banks are more cost efficient than private banks. This could be due to: 1. the number of state-owned banks was reduced in the last years and only more efficient banks are left in the Brazilian banking system, and 2. state-owned banks hold very large public servants payroll accounts and therefore have an important advantage. Further research could exploit profit efficiency as private banks may have higher profit efficiency.