Abstract
This research applies a technique that identifies areas of improvement that can be addressed by managerial decisions or policy activities. It extends the application of partial least squares structural equation modeling (PLS-SEM) using an importance-performance map analysis (IPMA). The IPMA determines priority factors that should receive management’s attention. The PLS path model was tested by comparing 140 failed U.S. banks with the same number of nonfailed banks from 2006 to 2008. This model assembles 15 indicators with four predecessor constructs (i.e., profitability of 2006, profitability of 2007, risk of 2006, and risk of 2007) and one final target construct (i.e., profitability of 2008). Profitability and risk of 2007 mediate the path of profitability and risk of 2006 and profitability of 2008. The IPMA indicated that failed banks were predisposed to decreasing financial performance in 2008 because of their poor performance in 2006 and 2007. Conversely, nonfailed banks were more likely to experience increasing financial performance in 2008 because of their positive performance in 2006 and 2007. This study indicates that managers who use IPMA to prioritize their financial decisions will obtain useful conceptual insights and are unlikely to be misled. Although IPMA can be conducted on the indicator level as well, this article limits its analysis by focusing on the construct level only. The use of IPMA is ubiquitous in end-user surveys, but its application to banking is still in its embryonic state. For originality, this work prioritizes the application of IPMA using secondary data collected from financial statements to assess the performance of American banks during the crisis.
Highlights
Researchers and professionals widely accept that the banking sector is the most important component of any financial system (Georgantopoulos & Tsamis, 2013)
Unlike distressed banks, nonfailed banks had never had a negative performance, which protected them from bankruptcy
In each importance-performance map, the analysis concentrated on the lower right area to enhance improvement because items plotted in that area have high importance with low performance
Summary
Researchers and professionals widely accept that the banking sector is the most important component of any financial system (Georgantopoulos & Tsamis, 2013). According to the Federal Deposit Insurance Corporation (FDIC), 140 U.S banks failed in 2009, including several high-profile institutions such as Bear Stearns, Citigroup, Lehman Brothers, Merrill Lynch, and Wachovia. This widespread failure indicated the weaknesses of the banking system (Ayadurai & Eskandari, 2018). Evaluating the financial performance of banks is very important because they were at the center of that crisis In the wake of the financial crisis, stakeholders are becoming increasingly concerned with their firm’s financial performance; bankers recognize the need to formulate better strategies to drive performance but may struggle to determine priorities
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