Abstract
This paper develops a serial three-stage network data envelopment analysis (DEA) model to estimate the efficiency of banks who transform their resources into final products, incomes. Different from previous studies, which oversimplified the banking's production, we divide it into three stages, namely, capital organisation, capital allocation, and capital turnover. The shared resources and undesirable outputs are also integrated into the evaluation framework to better reflect the nature of banking business. The novel contribution of our network structure is its ability to disclose the inefficient of each stage as well as its relative importance in the whole operation. The model is then employed to appraise the technical efficiency of 35 banks in Taiwan. Some managerial implications are offered to optimise their performance.
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