Alternative Profit Efficiency Research Articles

A frontier-based parametric framework for exploring the competition–efficiency nexus in commercial banking: insights from an emerging economy

PurposeThe present study assesses the commercial bank profit efficiency and its relationship to banking sector competition in a rapidly growing emerging economy, India from 2009 to 2019 using stochastic frontier analysis (SFA).Design/methodology/approachLerner indices, conventional and efficiency-adjusted, quantify competition. Two SFA models are employed to calculate alternative profit efficiency (inefficiency) scores: the two-step time-decay approach proposed by Battese and Coelli (1992) and the recently developed single-step pairwise difference estimator (PDE) by Belotti and Ilardi (2018). In the first step of the BC92 framework, profit inefficiency is calculated, and in the second step, Tobit and Fractional Regression Model (FRM) are utilized to evaluate profit inefficiency correlates. PDE concurrently solves the frontier and inefficiency equations using the maximum likelihood process.FindingsThe results suggest that foreign banks are less profit efficient than domestic equivalents, supporting the “home-field advantage” hypothesis in India. Further, increasing competition drives bank managers to make riskier lending and investment choices, decreasing bank profit efficiency. However, this effect varies depending on bank ownership and size.Originality/valueLiterature on the competition bank efficiency link is conspicuously scant, with a focus on technical and cost efficiency. Less is known regarding the influence of competition on bank profit efficiency. The article is one of the first to examine commercial bank profit efficiency and its relationship to banking sector competition. Additionally, the study work represents one of the first applications of the FRM presented by Papke and Wooldridge (1996) and the PDE provided by Belotti and Ilardi (2018).

INDONESIAN BANKING PERFORMANCE BASED ON BUKU

The improvement in the performance of Indonesian banking when the global economy is being hit by uncertainty is one of the best achievements. Acquiring profitability is accompanied by an increase in efficiency in using available resources to gain profit. This study aims to measure and analyze the performance of Indonesian banking based on Profit Efficiency. Profit Efficiency of a bank is analysed based on BUKU (Bank Umum Kelompok Usaha). The profit Efficiency is measured using the Sthocastic Frontier Analysis (SFA) Frontier 4.1 with the translog model of Alternative Profit Efficiency. The input variables used are: labor costs, physical capital costs and interest costs. The output variable used is the amount of credit and the amount of other productive assets. The model equation used is the Bank Activity Approach. The total sample was 19 commercial banks listed on the Indonesia Stock Exchange (IDX) and had financial reports from the year of 2010 to 2019. The results of banking Profit Efficiency measurement based on BUKU conclude that BUKU 2 indicated that each bank’s Profit Efficiency tends to be increasingly inefficient. BUKU 3 of profit efficiency of banks tends to be more efficient. BUKU 4 shows that banks in this group of Profit efficiency are increasingly efficient. This means that the greater the bank’s core capital, the more efficient it is in generating profits.

Abstracts of Ph.D theses on Algeria presented at British Universities, 2002 to 2017

The Maghreb Review, Vol. 44, 1, 2019 © The Maghreb Review 2019 This publication is printed on FSC Mix paper from responsible sources ABSTRACTS OF PH.D THESES ON ALGERIA PRESENTED AT BRITISH UNIVERSITIES, 2002 TO 2017 CURATED AND EDITED BY MOHAMED BEN-MADANI EDITORIAL NOTE Our earlier abstracts of English language theses on Algeria, 1945-2001, were published in Volume 26, Numbers 2-4, 2001, which included Ph.D theses presented in US and Canadian Universities. Similarly Abstracts of English Language Theses on Morocco 1928-2000, Volume 26, Numbers 2-4, 2001; 2001-2012, Volume 38, No. 2, 2013; 20122013 , Volume 39, Number 4, 2014, pp 482-500; 2014, Volume 40, Number 4, 2015, pp. 515-519; 2015-2016, Volume 42, Number 4, 2017, pp. 461-472; and Abstracts of English Language Theses on Libya, 1936-2012, Volume 41, Number 1, 2016 and 2013-2015, Volume 43, Number 3, 2018. These volumes are still available and can be ordered through our website: www.maghrebreview.com. We shall continue to publish supplements of Abstracts of Theses on Morocco, Algeria, Libya, and Tunisia in future issues of The Maghreb Review. These abstracts have not been included in any bibliographical work in the past and are arranged in Alphabetical order by author. FOREIGN NEWS IN COLONIAL ALGERIA, 1881-1940, PH.D, UNIVERSITY OF OXFORD, 2016, ASSERAF, ARTHUR This thesis looks at how news shaped people’s relationship to the world in Algeria under French rule. This territory operated under an uncertain legal status that made it both a part of France and a colony, and within it lived a society divided between European settlers and Muslim natives. Accounts of recent events helped Algerians determine what was domestic and what was foreign in a place where those two notions were highly contested. Colonialism did not close Algeria off from the world or open it up, instead it created a particular geography. In a series of case-studies taken from across Algeria, this thesis investigates a wide range of types of news: manuscripts, rumours, wire dispatches, newspapers, illustrations, songs, newsreels, and radio broadcasts. It focuses on the period in which Algeria’s legal status as part of France was most certain, from the end of the conquest and the consolidation of Republican rule in the 1880s to the outbreak of the Second World War. In this period, authorities thought the influence of outside events on Algeria was a bigger threat than disturbances within. Because of this, state surveillance produced reports to monitor foreign news, and these form the backbone of this study. But ABSTRACTS OF PH.D THESES ON ALGERIA, 2002 TO 2017 113 state attempts to manage the flow of news had unintended effects. Instead of establishing effective censorship, authorities ended up spreading news and making it more politically sensitive. Settlers, supposedly the state’s allies, proved highly disruptive to state attempts to control the flow of information. Through a social history of information in a settler colonial society, this research reconsiders the relationship between changes in media and people’s sense of community. From the telegraph to the radio, new technologies worked to divide colonial society rather than tying it together, and the same medium could lead to divergent senses of community. BANK COST AND ALTERNATIVE PROFIT EFFICIENCY IN ALGERIA, MOROCCO AND TUNISIA OVER THE PERIOD 1994-2001, PH.D, UNIVERSITY OF WALES, BANGOR, 2004 BAKHOUCHE, ABDERAZAK This thesis examines the cost and alternative profit efficiency of a sample of Algerian, Moroccan and Tunisian banks over the financial liberalisation period 1994-2001. The translog functional form and intermediation approach are employed in this study to derive inefficiency estimates as well as scale economies levels and scale inefficiencies estimates. The results show that inefficiencies are substantial in the three banking systems under study, with an average of 29% of cost inefficiency and 32% of alternative profit inefficiency. Scale economies and scale inefficiencies are also found to be not negligible at an average level of 46% and 9%, respectively, with a negative relationship between assets size class and scale economies and scale inefficiencies estimates. The analysis also principally reveals that; first, Moroccan and Tunisian banks are more cost efficient than their counterparts in Algeria, secondly...

MODEL STRUCTURE CONDUCT PERFORMANCE DALAM MENGUKUR TINGKAT EFISIENSI PASAR PADA INDUSTRI PERBANKAN SYARIAH

<p><em>Efficiency is one of the performance parameters that is theoretically one of the performance that underlies the entire performance of an organization. Efficiency in the banking world is one of the most popular performance parameters, widely used because it is the answer to the difficulties in calculating the performance measures of banking. The measurement of bank efficiency can be done with Structure Conduct Performance (SCP). In general there are three approaches to the basic concept of financial sector efficiency model that is cost efficiency, standard profit efficiency, and alternative profit efficiency. In this research, the method used is Structure Conduct Performance (SCP). In this method, profit is modeled to be deviated from its efficient efficient frontier due to random noise and inefficiency. Profit in this method is influenced by input and output function, while input and output used in this research are Third Party Fund, Paid-up Capital, placements with Bank Indonesia, placements with other banks, and financing provided.</em></p>

Evaluation of profit efficiency of Ukrainian banks on the base of SFA models

The article analyzes the profit efficiency of the Ukrainian banks by means of a constructed model of stochastic efficiency frontier on the basis of intermediary approach. For constructing of the trans-logarithmic function for the efficiency frontier, the concept of alternative profit efficiency was applied. We used the value of fixed assets, labor costs, the cost of loan capital as input variables, whereas output variables were: issued loans, other assets and total costs. The analysis of the profit efficiency of the Ukrainian banks in 2015 and 2016 pointed out to a number of serious problems in the domestic banking sector. Primarily, the system’s average efficiency in general was quite low and constituted only 0.31. Of particular concern is actually the zero efficiency of the Ukrainian state-owned banks. In contrast to the latter and subsidiaries of foreign banking groups the Ukrainian banks with private capital have showed a slightly higher level of profitability over the analyzed period.

ANALISIS FRONTIER EFFICIENCY INDUSTRI PERBANKAN INDONESIA DENGAN MENGGUNAKAN METODE DISTRIBUTION FREE APPROACH

As an intermediary institution, bank has a very vital role in the economic development of a country so bank has to operate efficiently. The efficiency analysis can be conducted with the three approaches, namely cost efficiency, profit efficiency, and alternative profit efficiency. The three approaches can measured with two methode, parametric and non parametric. By using parametric methode (Distribution Free Approach), cost efficiency of 107 commercial banks operating for 10 years (2002- 2011), the average cost efficiency of banks in Indonesia is 0.6729. While the average value of the profit efficiency in Indonesian banks is 0.96363 or more efficient than cost efficiency. The score of alternative profit efficiency Indonesian banks is 0.965957. The cost efficiency of commercial banks on average have no strong correlation with all financial ratios of banks. The profit efficiency have a strong relationship with financial ratios ROA and BOPO. Financial performance of the bank's ROE ratio has a moderate correlation with the level of profit efficiency. While the level of alternative profit efficiency have a strong relationship with financial performance ratios ROE, ROA, and ROA. NIM ratio has a low relationship with alternative profit efficiency. Keyword: Distributin Free Approach, Cost Efficiency, Profit Efficiency, and Alternative Profit Efficiency.

ANALISIS FRONTIER EFFICIENCY INDUSTRI PERBANKAN INDONESIA DENGAN MENGGUNAKAN METODE DISTRIBUTION FREE APPROACH

As an intermediary institution, bank has a very vital role in the economic development of a country so bank has to operate efficiently. The efficiency analysis can be conducted with the three approaches, namely cost efficiency, profit efficiency, and alternative profit efficiency. The three approaches can measured with two methode, parametric and non parametric. By using parametric methode (Distribution Free Approach), cost efficiency of 107 commercial banks operating for 10 years (2002- 2011), the average cost efficiency of banks in Indonesia is 0.6729. While the average value of the profit efficiency in Indonesian banks is 0.96363 or more efficient than cost efficiency. The score of alternative profit efficiency Indonesian banks is 0.965957. The cost efficiency of commercial banks on average have no strong correlation with all financial ratios of banks. The profit efficiency have a strong relationship with financial ratios ROA and BOPO. Financial performance of the bank's ROE ratio has a moderate correlation with the level of profit efficiency. While the level of alternative profit efficiency have a strong relationship with financial performance ratios ROE, ROA, and ROA. NIM ratio has a low relationship with alternative profit efficiency. Keyword: Distributin Free Approach, Cost Efficiency, Profit Efficiency, and Alternative Profit Efficiency.

PENGEMBANGAN MODEL PARAMETRIK METODE DEA DALAM MENGUKUR TINGKAT EFISIENSI BIAYA PADA PERBANKAN SYARIAH DI KOTA SEMARANG

Efficiency is one of the performance parameters that are theoretically is one of the underlying performance of the overall performance of an organization. Efficiency in the banking sector is one of the performance parameters are quite popular, widely used because it is a response to the difficulties in calculating measures of bank performance. Measurement of the efficiency of banking can be done with the development of non-parametric statistical model by using Data Envelopment Analysis (DEA). In general, there are three approaches to the basic concepts of financial sector efficiency model that is cost efficiency, standard profit efficiency and alternative profit efficiency. In this research method used is the Data Envelopment Analysis (DEA). In this method, profit is modeled to deviate from its efficient frontier profit due to random noise and inefficiency. Profit in this method is affected by the function of input and output, while input and output used in this study is the Third Party Funds, Capital paid, placements with Bank Indonesia. By using this method the efficiency of Islamic banking DEA during 2012 to 2015 experienced an annual average efficiency of 94.37% and profit Islamic banking is heavily influenced by the financing facilities and placements with Bank Indonesia.

Cost and Profit Efficiency of Bangladeshi Commercial Banks: A Stochastic Frontier Approach

This paper assesses the cost and profit efficiency levels of banks consist of conventional, Islamic Shariah based and state-owned commercial banks in Bangladesh over the period of 2011 to 2015. Basic accounting ratios and stochastic cost and profit approaches originated by stochastic frontier analysis have been used in this study. From the results of accounting-based ratios used in this study, conventional private commercial banks are more efficient compared to Islamic Shariah based private commercial banks and state-owned commercial banks in the both cases of cost and profit. According to the stochastic cost frontier approach, the commercial banks in Bangladesh are not found considerable cost inefficient. The cost efficiency level of 35 commercial banks in Bangladesh is 91.4 percent. The results of this study indicate that traditional private commercial banks are more cost efficient compared to Islamic Shariah based and state-owned commercial banks. From the results of stochastic profit efficiency frontier, the conventional private commercial banks have the higher values of alternative profit efficiency levels than the state-owned and Islamic Shariah based commercial banks. It can also be drawn that around one-fourth of profits of banks are lost because of inefficiency over the period covered by this study.

Adjustment costs in the technical efficiency: An application to global banking

This paper proposes a new framework of measuring technical efficiency that takes into account adjustment costs in variable inputs associated with changes in efficiency. We look closely at the implicit assumption in any model of technical efficiency that inputs could freely adjust. Yet, the technical efficiency is determined from the allocation of inputs by the firm to production on the one hand and to efficiency on the other. We show that technical efficiency depends on adjustment costs in variable inputs. Estimating the proposed model has certain complexities that we overcome by employing a non-parametric Local Linear Maximum Likelihood (LLML). In the empirical section, we employ a comprehensive global banking sample and estimate bank alternative profit efficiency across a plethora of countries with strong variability in the underlying adjustment costs. Moreover, given the observed heterogeneity across countries evidence shows that adjustment costs due to personnel expenses are the highest among advanced countries. Emerging economies show strong potential in terms of efficiency post-financial crisis, mainly due to lower labor adjustment costs. Alas, our findings show some persistence in adjustment costs post the financial crisis.

Assessing the impact of the global financial crisis on the profit efficiency of Indian banks

With the objective to assess the impact of the global financial crisis on bank efficiency in India, the study focuses on the evolution of profit efficiency before, during and after the crisis. For evaluating and comparing the risk-adjusted alternative profit efficiency of different ownership groups in the Indian banking industry, the study employs a DEA-based meta profit frontier framework that accounts for technological heterogeneity across groups. The results highlight that profit efficiency of banks declined mildly during the global financial crisis, but then recovered quickly after the crisis. However, the global financial crisis had a differentiated impact across ownership groups. New private banks observed largest drag in the profit efficiency during the crisis years. The analysis of technology gap ratio provides that foreign banks employed best-practice production technology, and were observed to be the technology leaders of the Indian banking industry. Overall, we found no long-lasting adverse effect of the global financial crisis on the profit efficiency of the Indian banking sector due to the adoption of accommodative macro policies aiming at injecting sufficient liquidity in the system.

A stochastic frontier model for measuring online bank profit efficiency

This study revisited an alternative profit efficiency function specified by Berger & Mester, (1997) and we applied Battese & Coelli, (1995) inefficiency model as a unified and consistent framework in exploring the determinants of important factors causing profit efficiency differential on banking industry in Bangladesh. Using stochastic frontier technique we estimated bank specific profit efficiency for the period 2000 to 2007. This study attempted to examine the changes in the profit efficiency in accordance with NBs (Nationalized Commercial Banks), ISBs (Islamic Banks), FBs (Foreign Banks) and PBs (Private Banks) and significant variations of efficiencies across different kinds of banks in time periods. We found that the profit inefficiency has declined over the reference period and Translog Production Function is more preferable than Cobb-Douglas Production Function. Our results showed that Nationalized Commercial Banks were significantly inefficient and on the contrary ISBs, FBs, and PBs were efficient in producing profit and noteworthy. The estimated year wise average efficiencies of the sample banks from the profit efficiency model was 0.664 while group wise average profit efficiency was 0,639. Dhaka Bank is highly efficient with score 0.89 and AB Bank was found lowest efficient with score 0,35 according to the sample data.

Efficiency of Banks: Recent Evidence from the Transition Economics of Europe - 1993-2000

This study examines the cost and profit efficiency of banking sectors in twelve transition economies of Central and Eastern Europe (CEE) over the period 1993-2000, using the stochastic frontier approach (SFA) and the distribution free approach (DFA). The paper follows a two-step approach: First, the efficiency estimates are obtained by employing a multi-product translog cost function. Then these estimates are regressed on a set of determinants. The managerial inefficiencies in CEE banking markets were found to be significant, with average cost efficiency level for 12 countries 72 and 76 percent by DFA and SFA. The alternative profit efficiency levels are found to be significantly lower relative to cost efficiency. According to SFA, approximately one-third of banks' profits are lost to inefficiency, and almost one-half according to the DFA. The higher efficiency levels are associated with larger size, higher profitability and equity. The level of competition and GDP growth are found to increase efficiency while market concentration is negatively linked to efficiency. Finally, foreign banks are found to be more cost efficient but less profit efficient relative to domestically owned private banks and state-owned banks.

Efficiency of Banks: Recent Evidence from the Transition Economies of Europe, 1993–2000

This study examines the cost and profit efficiency of banking sectors in twelve transition economies of Central and Eastern Europe (CEE) over the period 1993–2000, using the stochastic frontier approach (SFA) and the distribution-free approach (DFA). The managerial inefficiencies in CEE banking markets were found to be significant, with average cost efficiency level for 12 countries of 72% and 77% by the DFA and the SFA, respectively. The alternative profit efficiency levels are found to be significantly lower relative to cost efficiency. According to the SFA, approximately one-third of banks’ profits are lost to inefficiency, and almost one-half according to the DFA. The results of the second-stage regression analyses suggest that higher efficiency levels are associated with large and well-capitalized banks. The degree of competition has a positive influence on cost efficiency and a negative one on profit efficiency, while market concentration is negatively linked to efficiency. Finally, foreign banks are found to be more cost efficient but less profit efficient relative to domestically owned private banks and state-owned banks.

Does IT investment improve bank performance? Evidence from Europe

This paper investigates whether investment in information technology (IT) – hardware, software and other IT services – influences the performance of banks. Using a sample of 737 European banks over the period 1995–2000 we analyse whether IT investment is reflected in improved performance (measured using both standard accounting ratios and cost and alternative profit efficiency measures). Despite banks being major investors in IT we find little relationship between total IT investment and improved bank profitability or efficiency indicating the existence of a profitability paradox. However, the impact of different types of IT investment (hardware, software and services) on banks’ performance is heterogeneous. Investment in IT services from external providers (consulting services, implementation services, training and education, support services) appears to have a positive influence on accounting profits and profit efficiency, while the acquisition of hardware and software seems to reduce banks’ performance.

Financial liberalisation, crisis, and restructuring: A comparative study of bank performance and bank governance in South East Asia

This paper examines the impact of changes in bank governance on bank performance for a sample of commercial banks operating in SE Asia between 1990 and 2003. We identify bank governance in terms of bank ownership and measure bank performance as rank order alternative profit efficiency, technical change, and productivity. The period was characterised by financial deregulation, the Asian crisis and bank restructuring programmes. To resolve financial distress, SE Asian authorities implemented inter alia bank privatisation programmes and widened access for foreign ownership. Our results tend to support bank privatisation and the repeal of state ownership on economic grounds. We suggest the potential benefits of foreign ownership may take longer to be realised. For domestic private-owned banks, the challenge is improving bank efficiency.

Efficiency and Expense Preference in Philippines' Cooperative Rural Banks

This paper attempted to test whether efficient cooperative rural banks (CRBs) have a better control of their agency costs. We used two different concepts of efficiency, namely, cost efficiency and alternative profit efficiency, and found somewhat different results from both approaches. Using Stochastic Frontier Approach and Distribution Free Approach, we tested two different propositions. The first proposition is that an adequate corporate governance scheme should improve efficiency of CRBs. We failed to find very conclusive evidence that corporate governance theories apply to the Philippines' CRBs. However, the results confirmed both managers' compensation theory and large stakeholders theory. The second proposition is that agency costs should reduce efficiency of CRBs, and we found a much clearer relationship on that issue. As expected, most efficient CRBs are characterized by a better control of agency costs. These results are in accordance with previous studies on shirking behavior among mutual financial intermediaries. We also found that rural CRBs are most profit efficient, despite their somewhat normal cost-efficiency, a manifestation that they are able to charge higher fees for the quality of services they offer. Large CRBs are not able to pass their higher costs to customers through higher fees. We found that small CRBs might have a better interest rate policy, that is, they offer lower rates on both loans and deposits.

Cost and profit efficiency in the Spanish banking sector (1985–1996): a non-parametric approach

The aim of this article is to analyse the efficiency in costs and in profits of the Spanish banking sector (SBS) in the period 1985–1996 using a non-parametric approach. The results obtained show the existence of profit efficiency levels well below those corresponding to cost efficiency, alternative profit efficiency being below standard profit efficiency. These results imply the existence of market power in the setting of prices and/or the existence of differences in the quality of bank output reflected in the differences in prices. With regard to the immediate future, of full economic and monetary integration, the reduction of profit levels associated with higher competitive pressure may be offset by the reduction of all kinds of inefficiency, which is a very important potential source of competitiveness. Indeed, the results referring to 1996 indicate that the return on assets (ROA) and on equity (ROE) of the SBS could increase by 2.4% and 24.4% respectively, eliminating the combined inefficiency in cos...