Profit Efficiency Research Articles

Bank risk, profit efficiency and profitability in a frontier market

PurposeThe study examines the impact of risk on the profit efficiency and profitability of banks in Ghana.Design/methodology/approachData envelopment analysis was used to estimate profit efficiency scores and accounting ratios were used to measure profitability. The panel corrected standard error regression was used to assess the nexus using a dataset of 32 banks from 2000 to 2015.FindingsThe paper found that the Ghanaian banking industry exhibits a variable return to scale property, suggesting that average costs change with output size. Profit efficiency score for banks closer to the efficiency frontier is 61%. Credit risk is significant in enhancing profit efficiency and return on equity. Market risk is relevant in improving profit efficiency, return on asset and asset turnover. To drive profitability, bank managers have to be committed to effective liquidity risk, insolvency risk and capital risk management. Operational risk reduces shareholders' returns. The impact of size, age, stock exchange listing, cost efficiency and competition have are all been discussed extensively.Practical implicationsThe findings contribute to the knowledge on the risk-performance nexus and provide information that is valuable to academics, bankers and regulators for policy formulation. The findings are relevant to the newly established Financial Stability Council.Originality/valueThis paper appears to be among the premier attempts to examine the effect of various risk types identified in the Basel III framework on bank performance in Africa.

Profit Efficiency as a Measure of Performance and Frontier Models: A Resource-Based View

Although the resource-based view (RBV) of the firm is one of the most accepted theories of strategic management, it has been criticized for its limited empirical support. The RBV basically predicts the relationship between the firm’s resources and its performance. This study argues that it is more appropriate to measure firm performance using profit efficiency than traditional financial or accounting measures and that frontier models have great potential in empirical research on the RBV. To test this idea empirically, we used a stochastic frontier model with random coefficients to evaluate the impact of corporate reputation on profit efficiency. Finally, implications of the aforementioned focal points are discussed.JEL classification: C11, L25, M10, M20

Profit Efficiency of Women Dairy Farmers in Begusarai District of Bihar

The present study was undertaken to find out the profit efficiency of Women Dairy Co-operative Society (WDCS) member and non-member dairy farming households of Begusarai district of Biharusing a translog stochastic profit frontier and inefficiency model. The primary data was collected from 80 each members and non-member women dairy farmers using a semi-structured interview schedule. The results showed that the profit efficiency in the case of members (89.99 percent) was higher than non-members (87.97 percent). The mean efficiency in the case of member and non-member farmers was 71.76 and 60.77 percent, respectively which means that 28.24 and 39.23 percent of profit can be increased by improving technical and allocative efficiencies. The major determinants of profit inefficiency were found to be the age of the women dairy farmer, training received by them, farming experience, herd size, herds composition etc. Thus, training should be provided on dairy farming practices and the adoption of more crossbred in the herd should be increased in order to improve profit efficiency. It was concluded that WDCS played a very important role is changing the overall dairy sector in rural India.

Do State-owned Enterprises Underperform Compared to Privately owned Companies? An Examination of the Largest Polish Enterprises

ABSTRACT The aim of this article is to compare financial performance of the largest non-financial state-owned enterprises (SOEs) and privately owned enterprises in the years 2013–2015. We performed a univariate as well as discriminant analysis using various indicators assessing profitability, financial liquidity, and financial operational efficiency. When observing several aspects of financial performance, it is difficult to state whether SOEs underperform. Compared to privately owned enterprises, state companies achieve higher returns on assets. However, they underperform in terms of fixed capital employed, inventory management and have less financial liquidity.

Determinants of banks’ Nerlovian economic efficiency: a DEA-bootstrap approach

ABSTRACT This study aims to evaluate the Nerlovian economic efficiency of Taiwanese commercial banks and its determinants by assuming the presence of an imperfectly competitive market using a two-stage estimation procedure: Nerlovian economic inefficiency and its components’ price, technical and allocative efficiencies computed and decomposed in the first stage, which are regressed on the explanatory variables with a bootstrapped truncated approach in the second stage. The estimation results show that in the first-stage analysis, the Nerlovian economic inefficiency of banks is primarily due to allocative inefficiency, and indicate the existence of price inefficiency in Taiwan. In the second-stage analysis, the results confirm that both the years in operation of the bank and the ratio of credit loans are the main determinants of banking profit efficiency. In addition, this study not only shows that publicly owned banks contribute to better price efficiency but also proves that loan loss reserve to total assets is negatively associated with technical efficiency. The equity ratio exerts an insignificant favourable impact on allocative efficiency. The findings of this research are essential for bank managers in Taiwan.

Determinant of Financial Company Profitablity

The purpose of the paper is to study the determinants of finance companies profitability. The finance company industry is one of main contributors of Indonesia economic growth during the last 15 years. Total asset of the industry is more than IDR 500 Trillion in 2018. The industry also considered as one the fastest growing industries during the last 15 year. We have analyzed the five main financial ratios and alliance impact as determinants of finance companies’ profitability. The profitability is measured by profit size, return on asset and return on equity. The financial ratios are firm size, efficiency ratio, leverage ratio, asset allocation ratio, and profitability ratio. We use data panel. The empirical results show that the determinants of finance companies’ profitability are leverage ratio, firm size, and efficiency ratio. However, the determinants of return on asset are net profit margin and efficiency ratio. On the contrary, the determinants of return on equity are firm size and equity size. Firm size has negative influence on return on equity. All determinants are significant at less than 1%, only efficiency ratio on profitability has significant at less than 10%. Keywords: financial ratio, financial institution, profitability, return on assets, return on equity

Profitability analysis and technical efficiency of Sasakawa global 2000 maize technology in Lere Agricultural Zone, Kaduna state, Nigeria

The study determined the profitability and technical efficiency of Sasakawa Global (SG-2000) maize technology in Lere Agricultural Zone, Kaduna State, Nigeria. A total of 146 respondents were selected through a multi-stage sampling technique. Data were collected through structured questionnaire administered to the sampled respondents and complemented with interview schedule. Analysis of the data collected was done using descriptive statistics, farm budgeting technique and stochastic frontier function. Results showed that the mean age of SG-2000 adopters was 45years old, 73% of them were males and 81% were married. The mean farming experience of the adopters was 15 years, household size of 8 persons and farm size of 2.26ha respectively. Also, majority of the farmers were members of farmers’ cooperative society and had access to extension services. The farm budgeting technique revealed maize production was profitable in the area with gross margin and net farm income of ₦99,407.76/ha and ₦96,700.80/ha respectively. The maize farmers were not technically efficient with a mean efficiency score of 0.8181. The farm size at p<0.10, seed at p<0.01, fertilizer at p<0.01, capital input at p<0.01 probability levels respectively were efficiency factors, while the sex of farmer at p<0.10, marital status at p<0.10, farming experience at p<0.05 and access to credit at p<0.01 probability levels respectively were the inefficiency factors. It is recommended that other farmers in the study area should adopt the SG-2000 maize technology to improve their level of profitability and technical efficiency.
 Keywords: Profitability, Technical efficiency, SG-2000 maize technology, Farmers and Kaduna State

Net stable funding ratio and profit efficiency of commercial banks in the US

The net stable funding ratio (NSFR) was introduced under the Basel III accord to promote financial stability. Under this new international regulation, individual financial institutions are required to maintain a sustainable funding structure. Hence this new universal requirement is expected to materially affect bank operations. In this paper, we provide one of the first empirical examinations of the non-linear impact of the NSFR on profit (in)efficiency for commercial banks using two data sets from Bankscope (from 2000 to 2015) and the Federal Financial Institutions Examination Council call reports (between 2000–2013). Our results suggest that modest intensification in liquidity helps to reduce bank profit inefficiency (i.e. increase efficiency) but a too greater liquidity enlargement could increase inefficiency. This result is consistent with the trade-off hypothesis based on an assumption of a non-linear relationship between liquidity and bank performance

Profit Efficiency of Smallholder Pig Farmers in Tharaka-Nithi County, Kenya

The aim of this study was to determine the profit efficiency of the smallholder pig farmers in Tharaka-Nithi County, Kenya. The study carried out a census of 80 smallholder pig farmers. The data was collected with the help of semi-structured interview schedule. The study found out that five farms had profit efficiency score of 1 thus they were efficient while the rest were inefficient. The most inefficient farm had inefficiency level of 0.005, thus had to reduce input costs by 99.5% in order to acquire its target value. The mean profit efficiency results were 40% implying that efficiency level could be increased by 60% through reducing the excess inputs used and better use of available resources. This would be acquired if good management practices and marketing channels are adopted. The average input slack value of 1208 which means farmers had a chance of reducing their input costs by this amount per year without compromising their output. Benchmarks can be established from the best practices farms which can be used as a package for enhancing and stabilizing profit efficiencies of smallholder pig farmers which in turn could help improve the Kenya economy. The study also recommends policy interventions pertaining to pig enterprise inputs, marketing issues and financial products in order to improve pig farmers’ livelihoods. Keywords: Small Holder Farmers, Profit Efficiency, Data Envelopment Analysis, Decision Making Unit DOI: 10.7176/JESD/11-10-16 Publication date: May 31 st 2020

Profit Efficiency of the South Australian rock lobster fishery: A Nerlovian and directional distance function approach

Efficiency analyses are used in fisheries to understand the contributions of inputs, outputs and management to productivity. Previous efficiency analyses have mainly focused on productivity, cost and revenue, with relatively few investigating profit efficiency that enables analysis of the mix of inputs and outputs. Negative profits and small sample sizes in fisheries have been some of the obstacles diverting attention from this direction. We consider a new approach in the context of fisheries to overcome these challenges and examine profit efficiency in the South Australian rock lobster fishery. Specifically, we apply Nerlovian and directional distance function methods to decompose profit efficiency of the rock lobster fishery into technical and allocative efficiencies. We use local and meta-frontier efficiency techniques to compare the northern and southern zone rock lobster fisheries. In contrast to observations based on profit levels, the profit efficiency analysis shows no significant difference between northern and southern zones. In addition, we examine the effect of implementation of a quota system in the north to match the south and find that biological conditions hindered efficiency gains being fully realized after the implementation of the quota system.

Determinants of profit efficiency among peanut farming households in Tra Vinh province, Vietnam

This study is aiming to identify profit efficiency and its determinants among peanut farming households in Tra Vinh province, Vietnam, based on the data collected from 182 peanut farming households in three districts of Tra Vinh province. The Cobb-Douglas stochastic frontier profit function incorporating profit inefficiency effects was employed to analyze the data, using the Frontier 4.1. The results revealed that the profit efficiency was ranged between 29.80 to 96.76 percent, an average of 59.06 percent. Significant factors that were found negative affect the peanut farm profit were prices of fertilizer, pesticide, wage rate; whereas, the price of seed and land area (fixed factor) were found negative effect the peanut farm profit. Significant determinants that were found positive effect the profit efficiency of peanut farmers were gender, education attainment, peanut farming experience, farm size, credit access, training, and farmer’s association membership.

Effect of corporate social responsibility scores on bank efficiency: The moderating role of institutional context

AbstractThis paper examines how corporate social responsibility (CSR) affects bank efficiency in a sample of large commercial banks across 22 countries over the 2013–2017 period. We used a one‐step model of stochastic frontier analysis for panel data to estimate bank profit efficiency and found that the greater the activities in the social and environmental dimensions of CSR, the lower the level of efficiency, whereas activities in the corporate governance dimension are generally not relevant. This result supports the relevance of agent perspectives for these firms. However, we also found that institutional context moderates this baseline result. Specifically, all CSR activities have a positive impact on bank efficiency in common law countries and countries where the effectiveness of stakeholder protection is high. This supports the view that contexts that favor firms' sustainable behavior also increase bank efficiency.

Role of Corporate Governance in Bank’s Efficiency in Pakistan

Abstract The purpose of this research paper is to explore the role of corporate governance of banks (independence of the board, board size, CEO duality, audit committee independence, managerial ownership) to boosting up the bank’s efficiency. The study uses bank size, macro-economic conditions, banking structure and economic freedom as control variables. The sample size of the study is 21 Pakistani banks for the period of 2007-2016 and fixed effect panel regression estimation technique is used for data analysis. The results suggest that corporate governance has a statistically significant negative impact on management efficiency, positive effect on profit efficiency and cost efficiency of the banks. Moreover, the findings show that operating efficiency turned out to have a statistically insignificant relationship with corporate governance. Reforms of corporate governance should be adopted efficiently and effectively to boost the banking sector efficiency.

Does bank competition matter for performance and risk-taking? empirical evidence from BRICS countries

PurposeThis study examines the relationship between banks' competition performance and risk-taking behavior concerning the impacts of bank size and the recent global financial crisis. The analysis empirically uses dynamic panel data from 1137 banks of the BRICS countries (i.e. Brazil Russia India China and South Africa) for the period 2000–2015.Design/methodology/approachDynamic panel generalized method of moments (GMM) has been used primarily to examine the effect of bank competition on performance and risk-taking. Later the paper validates the core results by using three-stage least squares (3SLS) and incorporating alternative measure of competition in baseline equations.FindingsThis study confirms the significant impact of competition that complies with the structure-conduct-performance hypothesis quiet life hypothesis and “competition fragility” view. However, the key robust results are as follows: (1) in competitive markets large banks are more efficient than small banks; (2) there is a nonlinear relationship between competition performance and risk; (3) across bank size competition heterogeneously affects profitability efficiency risk and stability; (4) notably small banks are as efficient as large banks during crisis but shared with risk; and (5) small banks also stable during crisis in highly concentrated markets but less stable in competitive environments.Practical implicationsThis study promotes higher market power for the bank's profitability and financial stability. More intently policymakers should nurture both cost and revenue efficiency for large banks as these are less efficient than small banks in concentrated markets though these banks produce risk. Hence those banks should be cautious to minimize non-performing loans and maximize stability regarding financial and efficiency. Based on the nonlinear pattern of competition the regulators should adopt different policies for short and long run. It also recommends encouraging commercial and cooperative banks in the BRICS region as these are more efficient risk-averse and better stabilized than other types of banks.Originality/valueA good number of studies are available in the current literature which examines the impact of bank competition on either bank performance or risk-taking in a single country or cross country analysis. However, very few studies examine the relationship between bank performance and risk-taking behavior concerning the impacts of competition (non-linear and quadratic) size financial crisis and ownership structure together. Moreover, there is a dearth of literature on this topic that built on BRICS economies.

Profit Efficiency among Dairy Farms in the Eastern Region of India

ABSTRACT The profit efficiency in dairy farming is important to keep the farmer into dairy farming. The estimates of profit efficiency provide policymakers the information to what extent milk production can be expanded by removing the factors responsible for profit inefficiencies. Keeping this in mind the present study was undertaken in the eastern region of India to explore the profit efficiency among dairy farmers and factors affecting it. It was concluded that the mean profit efficiency of the dairy farmers was 0.7215 that is the profit could be increased by 27.85 percent if both technical and allocative inefficiencies were removed. Most of the farmers had their profit efficiencies in the range of 0.66 to 0.75. About 46.26 percent of the overall variation in actual profit from the maximum profit received by dairy farmers was due to differences in farmers’ practices and random factors. The profit efficiencies in the area could be increased by farmers’ education and experience in the business. Thus, the farmers should be periodically educated on appropriate feeding practices, and new technologies in dairying to overcome the inefficiencies.

Impact of NPA and loan write-offs on the profit efficiency of Indian banks

In recent years, Indian banks witnessed a huge increase in gross non-performing assets and loan write-offs. In this paper, impact of these two undesirable outputs has been examined on the profit efficiency of the banks using Nerlovian approach, which perhaps is a novel attempt in Indian context. It is found that inclusion of these two undesirable outputs has a significant impact on the profit efficiency of the Indian banks vis-a-vis their non-inclusion, and it is more evident from sharp decline in the profit efficiency of these banks. Also, it is observed that the allocative inefficiency of the banks was the main cause for their profit inefficiency. Further, loan write-offs should not be merely viewed as cleaning of the balance sheet of the banks as it has a noticeable impact on their profit efficiency.

Optimizing Taxi Driver Profit Efficiency: A Spatial Network-Based Markov Decision Process Approach

Taxi services play an important role in the public transportation system of large cities. Improving taxi business efficiency is an important societal problem. Most of the recent analytical approaches on this topic only considered how to maximize the pickup chance, energy efficiency, or profit for the immediate next trip when recommending seeking routes, therefore may not be optimal for the overall profit over an extended period of time due to ignoring the destination choice of potential passengers. To tackle this issue, we propose a novel Spatial Network-based Markov Decision Process (SN-MDP) with a rolling horizon configuration to recommend better driving directions. Given a set of historical taxi records and the current status (e.g., road segment and time) of a vacant taxi, we find the best move for this taxi to maximize the profit in the near future. We propose statistical models to estimate the necessary time-variant parameters of SN-MDP from data to avoid competition between drivers. In addition, we take into account fuel cost to assess profit, rather than only income. A case study and several experimental evaluations on a real taxi dataset from a major city in China show that our proposed approach improves the profit efficiency by up to 13.7 percent and outperforms baseline methods in all the time slots.

Adaptive Workflow Scheduling Using Evolutionary Approach in Cloud Computing

Cloud services are used to achieve diverse computing needs such as cost, security, scalability, and availability. Acceleration evolution in the distributed and cloud domains is common for large and dynamic workflows deployment. Resources and task mapping depend on the user’s objectives such as reduction in cost or execution completion within the stipulated time in consideration with certain quality of services. Multiple virtual machine instances can be launched by defining different configurations such as operating system, server types, and applications. Though workflow scheduling is an NP-Hard problem, variety of decision-making techniques are available for optimum resource allocation. In this research paper, different algorithms are studied and compared with evolutionary approaches. Workflow scheduling using genetic algorithm is implemented and discussed. This paper aims to design a decision-making technique to optimize resources of cloud. It is an adaptive scheduling to maximize profit by reducing execution time. The approach implemented is useful to cloud service providers to maximize profit and resource efficiency in their services.

Perceived effects of climate change on profit efficiency among small scale chili pepper marketers in Benue State, Nigeria

In the determination of the level of efficiency of an enterprise, the role of climate change cannot be overemphasized. However, some scholars are of the view that climate change might not really affect the level of efficiency of an enterprise due to its indirect effect on the performance of an enterprise. Understanding the perception of marketers of agricultural produce about climate change in agribusiness is paramount to sustain small scale enterprises. This study sought to analyze the perceived effects of climate change on profit efficiency among small scale chili pepper marketers in Benue State, Nigeria. Data were collected with the use of structured questionnaire and analyzed using stochastic frontier production function. A combination of purposive and random sampling techniques was used to select 349 producers and marketers, 152 processors, 143 processed retailers and 145 non-processed retailers giving a total of 789 small scale chili pepper marketers from three (3) agricultural zones that make up Benue State, Nigeria. The result showed that on the average, small scale chili pepper marketers are relatively profit efficient. The results also showed that in the marketing chain, small scale processed retailers had the highest mean profit efficiency (0.86). It was therefore recommended that switching business to adapt to crop varieties (cereal crops) that are more resilient to climate change could be an opportunity to small scale chili pepper marketers struggling with chili pepper to leapfrog previous performance and become more productive. Further, the training on preservation of perishable crop should be given to chili pepper producers and marketers and non-processed retailers given that excessive rainfall decreases their profit efficiency.

Risk and return of online channel adoption in the banking industry

Online banking has become an important distribution channel for commercial banks. We construct a bank-specific indicator of online channel adoption to study the risk and return of online channel based on a sample of 118 Chinese banks over the period of 2002–2016. Our empirical results find that online channel improves profit efficiency (i.e. a positive return) of the adopting banks. Even though cost efficiency deteriorates, such improvement attributes to the rise in non-interest income efficiency. In reference to risk management, online channel weakens loan quality of the adopting banks, which also raises their solvency risk accordingly. Overall, our results suggest that online channel increases the return of adoption banks albeit at a higher risk. Such risk-return effects are heterogeneous depending on the management skill, labor intensity and size of adopting banks. However, there is no significant return relates to the costly content enrichment of online channel. Finally, our results are robust to alternative specifications, alternative measures of bank efficiency and risk, alternative sample selection and estimation methods, and omitted variable biases.