Abstract
Banks choose the asset and liability mix of their portfolio in order to achieve maximum efficiency and optimal financial position. The purpose of this paper is to investigate the relationship between a bank's financial performance, measured by accounting-based ratios, and production performance proxied by efficiency indexes. While the existing literature examines financial ratios and efficiency issues in isolation, it is shown that a significant association between financial and production performances does exist for large commercial banks and that this association is time-sensitive. This finding suggests that efficiency indexes should be considered as a supplement to financial ratios in on-site examination in order to monitor the performance of banking firms more effectively.
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