Title: Productive Performance Evaluation of the Banking Sector in India Using Data Envelopment Analysis
Authors: Biresh K. Sahoo1, Jati K. Sengupta2, and Anandadeep Mandal3
1Amrita School of Business, Amrita Vishwa Vidyapeetham, Ettimadai Post, Coimbatore 641 105, India. e-mail: s_biresh@ettimadai.amrita.edu
2Department of Economics and Operations Research,
University of California, Santa Barbara, CA 93106, USA.
e-mail: sengupta@econ.ucsb.edu
3Industrial Development Bank of India (IDBI), Kochi-35, India
e-mail: anandadeep2003@yahoo.co.in
Abstract:
This paper attempts to examine, using data envelopment analysis, the productivity performance trends of the Indian commercial banks for the period: 1997-98 – 2004-05. Our broad empirical findings are indicative in many ways. First, the increasing average annual trends in TE for all ownership groups indicate an affirmative gesture about the effect of the reform process on the performance of the Indian banking sector. Second, the higher cost efficiency accrual of private banks over nationalized banks indicate that nationalized banks, though old, do not reflect their learning experience in their cost minimizing behavior due to X-inefficiency factors arising from government ownership. This finding also highlights the possible stronger disciplining role played by the capital market indicating a strong link between market for corporate control and efficiency of private enterprise assumed by property right hypothesis. And, finally, concerning the scale elasticity behavior, the technology- and market-based results differ significantly supporting the empirical distinction between returns to scale and economies of scale, often used interchangeably in the literature.
Key Words: Banks, Efficiency, Scale elasticity, Data Envelopment Analysis.
Status: Currently under second review for possible publication in International Journal of Operations Research, an official journal for the Operational Research Society of Taiwan.
Title: A Nonparametric Approach to Decomposing Profit Variation: An Application to Indian Commercial Banks
Authors: Biresh K. Sahoo and Anurag Singh
Abstract:
Even though productivity improvement has become a key objective for any firm facing competition, its measurement has gone largely unnoticed by accounting professionals. The implicit rationalization for the accounting profession’s lack of interest in productivity measurement apparently arises from the belief that variances computed by the basic standard cost system, particularly usage variances, are sufficient to measure the efficiency of the firm. Presumably, across-the-board tightening of standards by the desired percentage could signal a desire for increased productivity. If a firm were inefficient or failed to meet its productivity improvement target, then the accounting system would report many unfavorable usage variances.
However, Banker, Datar and Kalpan (1989) explored the relationship between productivity measurements and the usage variances produced by the standard cost systems to examine the role of productivity measurement that is not easily met by a collection of usage variances produced by accountants, and the productivity measures produced by economists, industrial engineers and operation managers. In the process they decompose the total profit variance over any two periods into sales activity variance, price recovery variance, productivity variance, and usage standard variance. This decomposition would enable the managers in identifying the weak areas on which steps to be taken for improvement in over all profit. In the light of this decomposition, we have decomposed profit change into quantity change and price change, with former being further decomposed into productivity change and activity change. Productivity change is further decomposed into operating efficiency change and technological change; and activity change into three components such as scale change, resource mix change and product-mix change.
The application of this decomposition is illustrated on Indian commercial banking sector, which consists of 80 banks (including public, private and foreign) over a period of eight years: 1997-98 – 2004-05. The methodology used in the study is the nonparametric Data Envelopment Analysis (DEA), a technique that is used extensively in economic and management science literature. Our empirical analysis focused on analyzing the effect of competition on each of these components of profit change with respect to ownership structure.
Key Words: DEA, Profit variance, Sales activity variance, price recovery variance, Productivity variance, Usage standard variance, Technical change variance and Operating efficiency variance.
Status: Under Progress
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