Terms Of Profit Efficiency Research Articles

Measuring the efficiency and productivity of U.K. insurance market

AbstractThe U.K. insurance industry has a dominant international presence, suggesting strong competitiveness and performance. Yet, its efficiency and productivity has rarely being investigated. The purpose of this paper is to provide an overview of insurers' performance in the U.K. insurance market from 1996 to 2017, using stochastic frontier analysis to measure efficiency scores and productivity at the firm level. Results show the U.K. insurance industry could improve by about 40% in terms of cost efficiency and by 70% in terms of profit efficiency. In addition, our model reveals a higher cost efficiency score compared to profit efficiency, implying that there are higher inefficiencies on the income side of the insurance industry as measured by our profit function. In terms of total factor productivity (TFP) growth, we report a steady decline over time while on average is negative. By decomposing TFP growth into its underlying components, we reveal that the reported negative trend in TFP growth over time has mainly been driven by the enhanced competition that resulted in a drop in markup, while the scale and cost efficiency has also driven TFP growth down. However, from a positive point of view, we report evidence of both β‐convergence and σ‐convergence in cost and profit efficiency.

한⋅일 은행산업의 메타효율성 비교: 이윤을 바탕으로

Purpose: This study aims to improve the competitiveness of the domestic banking industry by diagnosing the efficiency of the Japanese and Korean banking industries, which have similar financial environments such as long-term low growth and low interest rates.
 Research design, data, and methodology: The research method uses probabilistic frontier analysis (SFA) and the form of a profit function based on five years (2015- 2019) data for 35 banks in Korea and Japan. This study estimates the individual frontiers of Korean and Japanese banking groups, and estimates the meta-frontiers that encompass the individual frontiers of Korean and Japanese banks operating with different technologies. In addition, the international technology gap between two countries is measured and meta-profit efficiency is calculated using the profit efficiency of each country and the international technology gap. Through this verification process, the management characteristics of countries leading the meta-frontier and the banking industry in that country are confirmed.
 Furthermore, we regressively analyze the determinants of inefficiency for the profit and technology gap of the two national banking groups and draw implications. This study differs from previous studies in that it uses a probabilistic frontier analysis and a profit function for the international banking industry from a profit perspective.
 Results: As a result of empirical analysis, first, in terms of profit efficiency by country, the Bank of Korea group is more efficient. However, in the international technology gap, the Japanese banking group is considerably ahead of Korea. Accordingly, in terms of meta profit efficiency, the Japanese banking group is ahead of Korea, which is due to the international technology gap. Second, the meta profit efficiency of Japan’s three major urban banks is the highest with an average of 0.91 for five years, and among them, Mitsubishi UFJ Bank was found to be the leading bank among all the research target banks. Third, it was analyzed that the profit efficiency improvement effect occurs only when the market concentration (HHI index) of both countries’ banking groups is increased and the net loan ratio is lowered.
 Implications: Therefore, it was suggested that the banking industry of the two countries should increase their market dominance by increasing the beneficiary assets other than loans, because the increase in bad debts due to credit risk increases as the amount of loans increases and negatively affects the efficiency of banks.

The Impact of Capital Structure on the Profitability Performance of ICT Firms

Information and communication technology (ICT) companies strive for ceaseless innovation to remain competitive while facing the challenge of maximizing firm value (FV) with limited resources, and increasing the interests of shareholders. However, capital structures have a considerable effect on FV, and the literature still disagrees with the optimum structure in specific industries and countries. Therefore, this study evaluates the FV of ICT companies in terms of profitability efficiency using data envelopment analysis. In addition, this study applies a Tobit regression and Kruskal-Wallis one-way ANOVA to identify the impact of leverage, liquidity, and firm size, which are major capital structure factors influencing FV. The analysis yields three main results. First, in the ICT industry, small and medium companies tend to have better profitability efficiency than companies of other sizes. Second, only small and medium ICT manufacturing companies’ profitability efficiency is positively impacted by the current ratio. Third, only mid-sized service companies’ profitability efficiency is positively impacted by the debt-equity ratio. The results have policy and practical implications for improving the FV of ICT companies.

Estimating the efficiency of Greek banking system during the last decade of world economic crisis

PurposeThe purpose of this paper is to examine the efficiency of the four largest Greek banking organizations for the period 2004–2014, including both a period of strong economic growth and a period of economic crisis and recession, which is still plaguing the Greek economy and more specifically the Greek banking sector.Design/methodology/approachThe study incorporates the application of financial ratio analysis and the data envelopment analysis (DEA) in order to calculate the technical efficiency of Greek financial institutions. More specifically, a two-stage output-oriented DEA model is developed in order to estimate the global efficiency of banks. The banking function is considered as consisting of two stages in series, a service/operational efficiency and a profitability efficiency. In both output-oriented models, methods of constant returns to scale and variable returns to scale were applied.FindingsThe results show that in terms of operational efficiency, banks started from a low rate of return in 2004, which improved until 2008, which marked the peak of operational efficiency. By 2010, the operating efficiency varied with downward trend until 2012–2013. In terms of profitability efficiency, the image is clearer, since the impact the financial crisis had on bank’s profit efficiency led, by 2012, to a plunge in the average efficiency by 30–40 percent.Originality/valueA multi-stage DEA process, input oriented, was used in order to estimate changes in the performance and efficiency of banking system. The period 2004–2014 has not been examined until recently and all previous studies used the output-oriented DEA model.

Measuring bank efficiency and market power in the household and corporate credit markets considering credit risks

The aim of this paper is to estimate the efficiency of Hungarian banks with several models and to calculate the Lerner index for both the household and the corporate credit market. We apply stochastic frontier analysis (SFA) and data envelopment analysis (DEA) models to estimate the efficiency and calculate profit and cost efficiency with and without taking credit losses into consideration. In terms of cost efficiency, banks are nearly homogeneous and improved their efficiency after the crisis. Banks, however, are extremely heterogeneous in terms of profit efficiency. During the crisis, a gradual improvement could be observed across the sector after the initial downturn. Since the operating conditions of the household and the corporate credit markets are different, we estimated the intensity of competition separately for both the markets. While the Lerner index showed strong market power in the household credit market, the corporate credit market was characterised by intense competition. Regarding efficiency, various models often resulted in different conclusions, especially in the case of cost efficiency. Therefore we recommend that the regulatory decision-making process should always consider the results of several models. Moreover, the Lerner indices demonstrate that it might be important to use disaggregated models when modelling the features of credit markets.

An Analysis of Profitability and Marketability Efficiencies of Indian Public and Private Banks

The purpose of this study is to analyze the performance of Indian public and private banks by applying the data envelopment analysis (DEA) on a sample of 34 banks by considering the time period from 2006 to 2010. This study reveals that Indian public (nationalized and State Bank group) and private banks underperformed in terms of marketability and profitability efficiency. However, they were performing relatively better in terms of profitability efficiency as compared to the stock market performance (marketability efficiency). Specifically, these inefficiencies are explained by the ownership of the banks, and not by their size. Furthermore, there is little evidence of any impact of the financial crisis on the Indian banking system as evident from the sudden drop of marketability efficiency levels. However, it got recovered by the end of the study period.

A new two-stage data envelopment analysis (DEA) model for evaluating the branch performance of banks

The purpose of this paper is to provide a framework for evaluating the overall performance of bank branches in terms of profitability efficiency and effectiveness by means of a two stage data envelopment analysis (DEA) model. DEA is a linear programming problem approach for evaluating efficiency of decision making units (DMU) that have multiple inputs and outputs. In this paper, we use a two stage DEA model for efficiency evaluation of DMUs. In the two stage model all the outputs from the first stage are the only inputs to the second stage, in addition to the inputs to the first stage and the outputs from the second stage. The outputs from the first stage to the second stage are called intermediate measures. Many papers have regressed non parametric estimate of efficiency in the two stage DEA procedure. All of these studies have several problems in the benchmark or projection unit and present the DMU with relative efficiency. Most of these papers do not present an efficient benchmark unit and cannot evaluate the relative efficiency unit. In this paper we review these studies and then create a two stage model that does not have these problems. Our model presents the efficient benchmark unit and also presents DMU with relative efficiency. In the next step we apply our two stage model in bank branches of a large commercial bank in Iran. This study aggregates profitability efficiency and effectiveness into the overall performance. Some relations between profitability efficiency and effectiveness are very important. Without these relations we cannot obtain superior insight about overall performance. So we assume that profitability efficiency and effectiveness are dependent, and with this assumption we design a two stage DEA model. This study shows the importance of profitability efficiency and effectiveness in the overall performance in bank branches in Iran. Key words: Banking, process efficiency, organizational effectiveness, data envelopment analysis (DEA), banks, banks performance.

Does bank efficiency matter? Market value relevance of bank efficiency in Australia

The stochastic frontier analysis is employed to investigate efficiency of publicly listed Australian banks over the period 1985 to 2008. The results suggest that technical, cost and profit efficiency of Australian banks have improved over time. Large banks have attained a higher level of cost efficiency but a lower level of technical efficiency compared to small banks. No substantial difference between the two groups is found in terms of profit efficiency. A panel regression of bank stock return on bank efficiency suggests that an improvement in technical, cost or profit efficiency contributes to the market value of a bank. Thus, the shareholder wealth maximization goal is aligned with the goal of maximizing bank efficiency in the Australian context.

Does Bank Efficiency Matter? Market Value Relevance of Bank Efficiency in Australia

The stochastic frontier analysis is employed to investigate efficiency of publicly listed Australian banks over the period 1985-2008. The results suggest that technical, cost and profit efficiency of Australian banks have improved over our sample span. Large banks have attained a higher level of cost efficiency but lower level of technical efficiency compared to small banks. No significant difference between the two groups is found in terms of profit efficiency. A pooled regression of bank stock return on bank efficiency suggests that an improvement in technical, cost or profit efficiency contributes to the market value of a bank. Thus, the shareholder wealth maximization goal is aligned with the goal of maximizing bank efficiency in the Australian context.

Modeling bank branch profitability and effectiveness by means of DEA

PurposeThe purpose of this paper is to provide a framework for evaluating the overall performance of bank branches in terms of profitability efficiency and effectiveness.Design/methodology/approachApplying a two‐stage DEA model to a sample of bank branches of a large commercial bank in Greece this study disaggregates overall performance into profitability efficiency and effectiveness.FindingsThe results indicate that superior insights can be obtained by employing the proposed two‐stage DEA model compared to the outcomes from the analysis based on selected key performance indicators (KPIs). Some relations between profitability efficiency and effectiveness are also investigated.Originality/valueThe study highlights the importance of encouraging increased profitability and efficiency throughout the branch network of the commercial bank under study.

Bank efficiency in the new European Union member states: Is there convergence?

We employ the stochastic frontier approach and estimate a common frontier in order to examine cost and profit efficiency in the banking systems of the ten new European Union member states over the period 1998–2003. The results indicate a generally low level of cost and an even lower level of profit efficiency, whilst we do not observe marked differences of inefficiency scores across countries. Foreign banks outperform both state-owned and domestic private-owned banks in terms of profit efficiency, though results are less clear in the case of cost efficiency. In addition, β- and σ-convergence criteria indicate some convergence in cost efficiency across the new member states, yet no convergence appears to have been achieved in terms of profit efficiency.