Article ID: | iaor19991268 |
Country: | Netherlands |
Volume: | 98 |
Issue: | 2 |
Start Page Number: | 346 |
End Page Number: | 363 |
Publication Date: | Apr 1997 |
Journal: | European Journal of Operational Research |
Authors: | Thompson Russell G., Dharmapala P.S., Thrall Robert M., Taylor William M. |
Keywords: | financial, performance, statistics: data envelopment analysis |
Data envelopment analysis (DEA) and linked-cone assurance region (LC-AR) models are used in this paper to investigate the efficiency and profitability potential of Mexican banks as they engage in activities that incur interest and non-interest expenses and produce income. DEA provides a measure of each bank's relation to the best-practice frontier for its competitors. This can provide a better quality-benchmark than using industry averages or a particular peer bank as the benchmark. The banks are classified into efficient and inefficient sets. Multiplier values for AR-inefficient banks with unique slacks indicate the potential for management to improve the bank's performance relative to its peers. LC-ARs that provide economically reasonable bounds for the multipliers lead to profitability potential, as distinct from efficiency, results.