A Productivity analysis of Eastern European banking taking into account risk decomposition and environmental variables
This paper develops a new Luenberger productivity which is applied to a technology where the 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 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, which, in the beginning of the analysed period, hinged on the banks’ ability to capitalise on advanced technology and successfully take into account risk and environmental factors. Whereas, in the later sampled periods, we show that one of the most important factors of technological improvement/decline is 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. Indeed, we also find that external factors, such as a risk in the economy and banking production, and a ‘corruption perception’ affect the productivity of banks.
|Date of creation:||Jan 2010|
|Date of revision:||Jan 2010|
|Contact details of provider:|| Postal: Loughborough, Leicestershire, LE11 3TU|
Phone: +44 (0) 1509 222701
Fax: +44 (0) 1509 223910
Web page: http://www.lboro.ac.uk/departments/sbe/research/economics/index.html
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- R. Färe & D. Primont, 2003. "Luenberger Productivity Indicators: Aggregation Across Firms," Journal of Productivity Analysis, Springer, vol. 20(3), pages 425-435, November.
- Berger, Allen N. & Mester, Loretta J., 2003.
"Explaining the dramatic changes in performance of US banks: technological change, deregulation, and dynamic changes in competition,"
Journal of Financial Intermediation,
Elsevier, vol. 12(1), pages 57-95, January.
- Allen N. Berger & Loretta J. Mester, 2001. "Explaining the Dramatic Changes in Performance of U.S. Banks: Technological Change, Deregulation and Dynamic Changes in Competition," Center for Financial Institutions Working Papers 01-22, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Allen N. Berger & Loretta J. Mester, 2002. "Explaining the dramatic changes in performance of U.S. banks: technological change, deregulation, and dynamic changes in competition," Working Papers 01-6, Federal Reserve Bank of Philadelphia.
- Laeven, Luc & Majnoni, Giovanni, 2003. "Loan loss provisioning and economic slowdowns: too much, too late?," Journal of Financial Intermediation, Elsevier, vol. 12(2), pages 178-197, April.
- Luc Laeven & Giovanni Majnoni, 2002. "Loan loss provisioning and economic slowdowns: too much too late?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston.
- Laeven, Luc & Majnoni, Giovanni, 2001. "Loan loss provisioning and economic slowdowns : too much, too late?," Policy Research Working Paper Series 2749, The World Bank.
- 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.
- 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 215-231, May.
- 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.
- Grifell-Tatje, E. & Lovell, C. A. K., 1997. "The sources of productivity change in Spanish banking," European Journal of Operational Research, Elsevier, vol. 98(2), pages 364-380, April.
- Maniadakis, Nikolaos & Thanassoulis, Emmanuel, 2004. "A cost Malmquist productivity index," European Journal of Operational Research, Elsevier, vol. 154(2), pages 396-409, April.
- Ana Lozano-Vivas & Jesus T. Pastor, 2006. "Banking And Economic Activity Performance: An Empirical Study At The Country Level," Manchester School, University of Manchester, vol. 74(4), pages 469-482, 07.
- Anthony N. Rezitis, 2006. "Productivity growth in the Greek banking industry: A non-parametric approach," Journal of Applied Economics, Universidad del CEMA, vol. 9, pages 119-138, May.
- Isik, Ihsan & Kabir Hassan, M., 2003. "Financial deregulation and total factor productivity change: An empirical study of Turkish commercial banks," Journal of Banking & Finance, Elsevier, vol. 27(8), pages 1455-1485, August.
- Isik, Ihsan & Hassan, M. Kabir, 2003. "Financial disruption and bank productivity: The 1994 experience of Turkish banks," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(2), pages 291-320.
- John P. Bonin & Istvan Abel, 2000. "Retail Banking in Hungary: A Foreign Affair?," William Davidson Institute Working Papers Series 356, William Davidson Institute at the University of Michigan.
- José Manuel Pastor Monsálvez, 1998. "- Efficiency And Risk Management In Banking Firms: A Method To Decompose Risk," Working Papers. Serie EC 1998-10, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Emili Tortosa-Ausina, 2002. "Bank Cost Efficiency and Output Specification," Journal of Productivity Analysis, Springer, vol. 18(3), pages 199-222, November.
- 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.
- Jean-Christophe Poutineau & W. Briec & J.-P. Boussemart & Kristiaan Kerstens, 2003. "Luenberger and Malmquist Productivity Indices: Theoretical Comparisons and Empirical Illustration," Post-Print halshs-00068813, HAL.
- Casu, Barbara & Girardone, Claudia & Molyneux, Philip, 2004. "Productivity change in European banking: A comparison of parametric and non-parametric approaches," Journal of Banking & Finance, Elsevier, vol. 28(10), pages 2521-2540, October.
- Lozano-Vivas, Ana & Humphrey, David B., 2002. "Bias in Malmquist index and cost function productivity measurement in banking," International Journal of Production Economics, Elsevier, vol. 76(2), pages 177-188, March.
- 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.
- 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.
- José Manuel Pastor Monsálvez, 1999. "- Credit Risk And Efficiency In The European Banking Systems: A Three-Stage Analysis," Working Papers. Serie EC 1999-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Drake, Leigh & Hall, Maximilian J.B. & Simper, Richard, 2006. "The impact of macroeconomic and regulatory factors on bank efficiency: A non-parametric analysis of Hong Kong's banking system," Journal of Banking & Finance, Elsevier, vol. 30(5), pages 1443-1466, May.
- 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.
- 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.
- 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.
- Zhou, Peng & Poh, Kim Leng & Ang, Beng Wah, 2007. "A non-radial DEA approach to measuring environmental performance," European Journal of Operational Research, Elsevier, vol. 178(1), pages 1-9, April.
- Jose Pastor, 1999. "Efficiency and risk management in Spanish banking: a method to decompose risk," Applied Financial Economics, Taylor & Francis Journals, vol. 9(4), pages 371-384.
- Barros, Carlos Pestana & Managi, Shunsuke & Matousek, Roman, 2009. "Productivity growth and biased technological change: Credit banks in Japan," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 19(5), pages 924-936, December.
- Chen, Yao, 2003. "A non-radial Malmquist productivity index with an illustrative application to Chinese major industries," International Journal of Production Economics, Elsevier, vol. 83(1), pages 27-35, January.
- Sturm, Jan-Egbert & Williams, Barry, 2004. "Foreign bank entry, deregulation and bank efficiency: Lessons from the Australian experience," Journal of Banking & Finance, Elsevier, vol. 28(7), pages 1775-1799, July.
- Pastor, JoseManuel & Perez, Francisco & Quesada, Javier, 1997. "Efficiency analysis in banking firms: An international comparison," European Journal of Operational Research, Elsevier, vol. 98(2), pages 395-407, April.
- Francisco Pérez García & Javier Quesada Ibañez & José Manuel Pastor Monsálvez, 1995. "Efficiency Analysis In Banking Firms: An International Comparison," Working Papers. Serie EC 1995-18, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
- Leightner, Jonathan E. & Lovell, C. A. Knox, 1998. "The Impact of Financial Liberalization on the Performance of Thai Banks," Journal of Economics and Business, Elsevier, vol. 50(2), pages 115-131, March.
- Tsionas, Efthymios G. & Lolos, Sarantis E. G. & Christopoulos, Dimitris K., 2003. "The performance of the Greek banking system in view of the EMU: results from a non-parametric approach," Economic Modelling, Elsevier, vol. 20(3), pages 571-592, May.
- 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.
- Havrylchyk, Olena, 2004. "Consolidation of the Polish banking sector: consequences for the banking institutions and the public," Economic Systems, Elsevier, vol. 28(2), pages 125-140, June. Full references (including those not matched with items on IDEAS)