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What Drives Profitability: Level or Growth Efficiency?

Author

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  • Misra, Biswa Swarup
  • Sahoo, Biresh

Abstract

Examining the impact of ratio-based efficiency metrics, such as cost-to-income-ratio, and multifactor-based level efficiency on profitability can be potentially misleading. Our examination of Indian banks spanning the period from 2006 to 2023 reveals that profitability is significantly influenced by multifactor-based growth efficiency, rather than level efficiency. Notably, this finding remains robust when using either conventional or risk-adjusted measure of market power.

Suggested Citation

  • Misra, Biswa Swarup & Sahoo, Biresh, 2024. "What Drives Profitability: Level or Growth Efficiency?," MPRA Paper 120360, University Library of Munich, Germany, revised 05 Mar 2024.
    • Handle: RePEc:pra:mprapa:120360
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    File URL: https://mpra.ub.uni-muenchen.de/120360/1/MPRA_paper_120360.pdf
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    References listed on IDEAS

    as
    1. Biswa Swarup Misra & Paolo Coccorese, 2022. "Market power, efficiency and stability of Indian banks," Economic Change and Restructuring, Springer, vol. 55(4), pages 2263-2292, November.
    2. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    3. Giovanni S. F. Bruno, 2005. "Estimation and inference in dynamic unbalanced panel-data models with a small number of individuals," Stata Journal, StataCorp LP, vol. 5(4), pages 473-500, December.
    4. B. K. Sahoo & K. Kerstens & K. Tone, 2012. "Returns to growth in a non parametric DEA approach," Post-Print hal-00684430, HAL.
    5. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Profitability; Level efficiency; Growth efficiency; Lerner index; Indian banking;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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