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A multidimensional approach to measuring bank branch efficiency_Quaranta_Raffoni_Visani_2017_European Journal of Operational Research.pdf (775.83 kB)

A multidimensional approach to measuring bank branch efficiency

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posted on 2017-10-19, 09:01 authored by Anna G. Quaranta, Anna RaffoniAnna Raffoni, Franco Visani
Bank branch efficiency measurements range from simple ratio and standard regression analyses to more complex frontier approaches, each with specific strengths and weaknesses. However, in isolation, the indexes that these approaches generate fail to capture the multidimensional nature of bank branch efficiency. This paper develops a three-step procedure that enables combining the strengths of the existing approaches. We begin by taking the widest number of efficiency indexes proposed in literature (step 1), reduce the redundant information through a collinearity analysis (step 2), and categorize bank branches into efficiency classes through a clustering procedure (step 3). We test our approach on 23 branches of an Italian regional bank. The results show that this three-step approach is able to provide a multidimensional view of efficiency based on indexes employing a wide range of theoretical and methodological approaches with different ways of conceiving (intermediation vs. production) and measuring (stock, vs. flow, or physical measures) bank outputs and inputs, different definitions of efficiency (technical and cost efficiency), and different measurement approaches (ratios, standard regression analysis and frontier functions). The resulting efficiency ranking is consistent with those that univariate indexes generate and provides a balanced evaluation of branch efficiency when such indexes produce contradictory indications.

History

School

  • Business and Economics

Department

  • Business

Published in

European Journal of Operational Research

Volume

266

Issue

2

Pages

746-760

Citation

QUARANTA, A.G., RAFFONI, A. and VISANI, F., 2018. A multidimensional approach to measuring bank branch efficiency. European Journal of Operational Research, 266(2), pp.746-760.

Publisher

© Elsevier

Version

  • AM (Accepted Manuscript)

Publisher statement

This paper was accepted for publication in the journal European Journal of Operational Research and the definitive published version is available at https://doi.org/10.1016/j.ejor.2017.10.009

Acceptance date

2017-10-08

Publication date

2017-10-16

Copyright date

2018

ISSN

0377-2217

Language

  • en