Title: Classification of profitability using DEA and cluster analysis: a transnational comparison of South Asian banks

Authors: Parakramaweera Sunil Dharmapala; Piyadasa Edirisuriya

Addresses: Department of Operations Management and Business Statistics, College of Economics and Political Science, Sultan Qaboos University, P.O. Box 20, Al Khoud 123, Sultanate of Oman ' Department of Banking and Finance, Monash University, P.O. Box 197, Caulfield East, Melbourne, Victoria 3145, Australia

Abstract: We propose a method to classify banks as profit-makers, loss-makers or neither by randomising Thompson-Thrall's linked-cone (LC) profit ratios with assurance-regions (AR) in data envelopment analysis (DEA). Thompson et al. (1995) addressed 'profitability' of banks with the introduction of LC-AR profit ratios. We randomise LC-AR and show that randomised profit ratios uncover more profit-makers than Thompson-Thrall's profit ratios. In an application to banks from four South Asian nations, we demonstrate how to do this classification. Then, using cluster analysis with financial ratios and randomised profit ratios, we strengthen the classification of profit-makers and do a comparative study across nations.

Keywords: data envelopment analysis; DEA; assurance regions; linked cones; profit ratios; banking; cluster analysis; bank profitability; transnational comparison; South Asian banks; financial ratios.

DOI: 10.1504/IJIDS.2015.071370

International Journal of Information and Decision Sciences, 2015 Vol.7 No.3, pp.213 - 240

Published online: 22 Aug 2015 *

Full-text access for editors Full-text access for subscribers Purchase this article Comment on this article