Profitability of a sample of Portuguese bank branches and its decomposition into technical and allocative components

The efficiency literature, both using parametric and non-parametric methods, has been focusing mainly on cost efficiency analysis rather than on profit efficiency. In for-profit organisations, however, the measurement of profit efficiency and its decomposition into technical and allocative efficienc...

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Bibliographic Details
Published in:European journal of operational research 2005-05, Vol.162 (3), p.850-866
Main Authors: Silva Portela, Maria Conceição A., Thanassoulis, Emmanuel
Format: Article
Language:English
Subjects:
Applied sciences
Bank branches
Branch banking
Data envelopment analysis
Efficiency
Exact sciences and technology
Mathematical programming
Operational research and scientific management
Operational research. Management science
Operations research
Profit efficiency
Profitability
Profits
Studies
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Summary:The efficiency literature, both using parametric and non-parametric methods, has been focusing mainly on cost efficiency analysis rather than on profit efficiency. In for-profit organisations, however, the measurement of profit efficiency and its decomposition into technical and allocative efficiency is particularly relevant. In this paper a newly developed method is used to measure profit efficiency and to identify the sources of any shortfall in profitability (technical and/or allocative inefficiency). The method is applied to a set of Portuguese bank branches first assuming long run and then a short run profit maximisation objective. In the long run most of the scope for profit improvement of bank branches is by becoming more allocatively efficient. In the short run most of profit gain can be realised through higher technical efficiency.
ISSN:0377-2217
1872-6860
DOI:10.1016/j.ejor.2003.10.018