An application of data envelopment analysis for Korean banks with negative data

Document Type

Article

Department or Administrative Unit

Finance and Supply Chain Management

Publication Date

5-2-2017

Abstract

Purpose

The purpose of this paper is to measure the comparative efficiency of 18 Korean commercial banks under the presence of negative observations and examine performance differences among them by grouping them according to their market conditions.

Design/methodology/approach

The authors employ two data envelopment analysis (DEA) models such as a Banker, Charnes, and Cooper (BCC) model and a modified slacks-based measure of efficiency (MSBM) model, which can handle negative data. The BCC model is proven to be translation invariant for inputs or outputs depending on output or input orientation. Meanwhile, the MSBM model is unit invariant in addition to translation invariant. The authors compare results from both models and choose one for interpreting results.

Findings

Most Korean banks recovered from the worst performance in 2011 and showed similar performance in recent years. Among three groups such as national banks, regional banks, and special banks, the most special banks demonstrated superb performance across models and years. Especially, the performance difference between the special banks and the regional banks was statistically significant. The authors concluded that the high performance of the special banks was due to their nationwide market access and ownership type.

Practical implications

This study demonstrates how to analyze and measure the efficiency of entities when variables contain negative observations using a data set for Korean banks. The authors have tried two major DEA models that are able to handle negative data and proposed a practical direction for future studies.

Originality/value

Although there are research papers for measuring the performance of banks in Korea, all of the papers in the topic have studied efficiency or productivity using positive data sets. However, variables such as net incomes and growth rates frequently include negative observations in bank data sets. This is the first paper to investigate the efficiency of bank operations in the presence of negative data in Korea.

Comments

This article was originally published in Benchmarking: An International Journal. The full-text article from the publisher can be found here.

Due to copyright restrictions, this article is not available for free download from ScholarWorks @ CWU.

Journal

Benchmarking: An International Journal

Rights

Copyright © 2017, Emerald Publishing Limited

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