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A frontier analysis comparison of banking ‘added value’

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  • Margaret Brown
  • Edward P.M. Gardener

Abstract

Recently, a new added value to inputs (AVI) ratio has been developed for ranking banks by their ‘competitive advantage’. This kind of market-based measure of performance is now being widely developed in banking. The primary aim of this article is to use the data envelopment analysis (DEA) technique to expose some of the underlying properties of AVI: a comparative simulation exercise is used to perform an exploratory sensitivity and critical variable analysis. It is shown that the AVI scalar ratio embodies inter alia a hidden assumption of constant returns to scale, and it corresponds to the simplest possible form of DEA model. Another aim is to generalise and improve the AVI approach using DEA. More insight is obtained by applying DEA, which allows for explicit assumptions about returns to scale and provides multi-dimensional forms of AVI measures.

Suggested Citation

  • Margaret Brown & Edward P.M. Gardener, 2004. "A frontier analysis comparison of banking ‘added value’," The Service Industries Journal, Taylor & Francis Journals, vol. 24(4), pages 41-65, July.
    • Handle: RePEc:taf:servic:v:24:y:2004:i:4:p:41-65
    DOI: 10.1080/0264206042000275181
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    1. repec:bla:scandj:v:94:y:1992:i:0:p:s111-29 is not listed on IDEAS
    2. R J Colwell & E P Davis, 1992. "Output, Productivity and Externalities - the Case of Banking," Bank of England working papers 3, Bank of England.
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    Cited by:

    1. Imad Bou-Hamad & Abdel Latef Anouze & Ibrahim H. Osman, 2022. "A cognitive analytics management framework to select input and output variables for data envelopment analysis modeling of performance efficiency of banks using random forest and entropy of information," Annals of Operations Research, Springer, vol. 308(1), pages 63-92, January.
    2. Abdul Kadar Muhammad Masum & Md Abul Kalam Azad & Kazi Enamul Hoque & Loo-See Beh, 2015. "Domestic Banks in Bangladesh Could Ensure Efficiency by Improving Human Resource Management Practices," PLOS ONE, Public Library of Science, vol. 10(7), pages 1-17, July.

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