Variable portfolio proposal for banking efficiency assessment

Abstract

Purpose The importance of banking efficiency has been shown to have become increasingly relevant, not only for researchers but also for decision makers. However, the large number of combinations between the variables used and the different approaches considered to measure efficiency caused a divergence between authors regarding the inputs and outputs used. The paper aims to discuss these issues. Design/methodology/approach On the basis of a critical analysis of the main variables used in literature, this paper proposes a set of inputs and outputs to be used with consideration of the main approaches to banking efficiency. Findings Filling a gap in the literature, this study contributes to the development of future studies by suggesting variables which, in accordance with the theory related to banking efficiency, are highly suitable for creating relevant information for decision-making. Originality/value Frontier techniques are largely applied for assessing efficiency not only in large financial institutions, but also in bank branches and other regional units. Although a wide variation of articles follows a set of inputs and outputs without arguing for its suitability, this paper differs from the vast majority of applications by discussing the most reliable set of variables to represent efficiency levels.