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Data Envelopment Analysis: A Tool of Measuring Efficiency in Banking Sector

Author

Listed:
  • Filzah Mohamed Othman

    (International Business School, Universiti Teknologi Malaysia, Kuala Lumpur, Malaysia,)

  • Nor Aiza Mohd-Zamil

    (International Business School, Universiti Teknologi Malaysia, Kuala Lumpur, Malaysia)

  • Siti Zaleha Abdul Rasid

    (International Business School, Universiti Teknologi Malaysia, Kuala Lumpur, Malaysia,)

  • Amin Vakilbashi

    (International Business School, Universiti Teknologi Malaysia, Kuala Lumpur, Malaysia,)

  • Mozhdeh Mokhber

    (International Business School, Universiti Teknologi Malaysia, Kuala Lumpur, Malaysia,)

Abstract

The present paper examined the review of literature related to measuring relative efficiency of banks using data envelopment analysis (DEA). The efficiency of banks is measure through the ability of the individual bank to maximise output given a certain level of input. By measuring its efficiency, it can serves as early warning or benchmark of its performance and it can define future improvement in various area such as managerial, technology or socio-economic. DEA is comprises of two basic model that are DEA Charnes-Cooper-Rhodes model with constant return to scale assumption and DEA Banker-Charnes-Cooper model with variable return to scale assumption. In banking industry, DEA is using two approaches that are production or intermediation approach. The former highlights banks as delivering services in the form of transaction and the later assumes banks intermediate funds between surplus units to deficit unit. The study of efficiency in banks with similar economic and political condition is important as banks operate in parallel.

Suggested Citation

  • Filzah Mohamed Othman & Nor Aiza Mohd-Zamil & Siti Zaleha Abdul Rasid & Amin Vakilbashi & Mozhdeh Mokhber, 2016. "Data Envelopment Analysis: A Tool of Measuring Efficiency in Banking Sector," International Journal of Economics and Financial Issues, Econjournals, vol. 6(3), pages 911-916.
    • Handle: RePEc:eco:journ1:2016-03-12
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    References listed on IDEAS

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    1. Berger, Allen N. & Hancock, Diana & Humphrey, David B., 1993. "Bank efficiency derived from the profit function," Journal of Banking & Finance, Elsevier, vol. 17(2-3), pages 317-347, April.
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    4. Tser‐yieth Chen & Chie‐Bein Chen & Sin‐Ying Peng, 2008. "Firm operation performance analysis using data envelopment analysis and balanced scorecard," International Journal of Productivity and Performance Management, Emerald Group Publishing Limited, vol. 57(7), pages 523-539, September.
    5. Charnes, A. & Cooper, W. W. & Rhodes, E., 1979. "Measuring the efficiency of decision-making units," European Journal of Operational Research, Elsevier, vol. 3(4), pages 339-338, July.
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    Cited by:

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    More about this item

    Keywords

    Data Envelopment Analysis; Efficiency; Banking;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting

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