Profit Efficiency

This article illustrates how Kourosh and Arash Model (KAM) is able to measure profit-efficiency of Decision Making Units (DMUs) in Data Envelopment Analysis (DEA). The advantages of KAM in comparison with the current profit efficiency DEA models proposed by Cooper et al. (2007) and Coelli et al. (2005) are also illustrated with a clear example.

Compared with previous crises few banks failed as a result of the U.S. financial crisis of 2007-2009. We investigate the role played by managerial efficiency in the non-systemic bank failures during the crisis. During previous waves of bank failures, cost-inefficient banks and banks with relatively less capital or low-quality assets were more likely to fail. Using data from 2001 to 2010, we show that profit inefficiency—our proxy for managerial inefficiency— is a robust predictor of bank failures while cost inefficiency is unrelated to them. In addition, capital adequacy lost importance in predicting non-systemic bank failures during the crisis while loan quality remained a strong predictor. Our results suggest that profit efficiency can be an important managerial indicator in monitoring banks.

This paper is, to my knowledge, the first to estimate a stochastic frontier model in which foreign bank ownership interacts with both the frontier and the inefficiency effects. Few studies in this field have focused on countries with a low income level, such as some African and Caribbean nations. This paper considers the case of Haiti, which is an excellent example of a developing economy with a low income level. The results reveal that foreign banks significantly impact both the frontier and the inefficiency effects. Although they enjoy technological progress, compared with domestic banks, foreign banks are less profit efficient.

This study intends to test, analyze, and verify the influence of bank size, capital adequacy, liquidity, credit risk, and market power on commercial banks profitability. Quantitative research methods applied in this study are explanatory method, which aims to analyze the influence of independent variables on dependent variable and descriptive method to describe the object studied. The study also applies the Stochastic Frontier Analysis (SFA) approach to estimate the technical efficiency of commercial banks. The results show that bank size, capital adequacy (CAR), liquidity (LDR), credit risk (NPL) and market power significantly affect the profitability of commercial banks in Indonesia in the period of 2010-2016. The result of yearly financial report of each bank is caused by the fact that: 1). some banks are in the process of mergers; 2). the allowance for impairment losses on financial assets and non-financial assets increased primarily with banks in the merger process; 3). banks have credits in default status and under special surveillance with an increasing amount of credits from year to year.