Title: Parametric and nonparametric Malmquist productivity decomposition: a case study of European commercial banks

Authors: Ozlem Olgu, Thomas G. Weyman-Jones

Addresses: College of Administrative Sciences and Economics, Koc University, Rumeli Feneri Yolu, Sariyer, 34450, Istanbul, Turkey. ' Department of Economics, University of Loughborough, Loughborough, LE11 3TU, UK

Abstract: We investigated the productivity disparities of the small commercial banks of old European Union member countries (EU-12) and new European Union member countries (EU-10) over the 1997–2001 period in this study. Bank categorisation and comparison is based on banks| total assets size and statistical tests are applied to control for comparability. The empirical analysis is based on the comparison of a time-varying stochastic parametric distance function with conventional Data Envelopment Analysis (DEA). Both parametric and nonparametric productivity indices are decomposed into technical efficiency change, technological change and scale efficiency change components. Our aim is to investigate how the relevant components affect the productivity change scores and how the results vary with different measurement techniques. The cross-methodological analysis suggests evidence of consistency between the parametric and nonparametric findings where scale efficiency change is the most effective factor on the productivity change scores. Moreover, EU-12 small commercial banks revealed decreasing returns to scale, while EU-10 commercial banks performed with slight increasing returns to scale.

Keywords: European commercial banks; productivity decomposition; output-distance functions; parametric techniques; nonparametric techniques; Malmquist index; small banks; data envelopment analysis; DEA.

DOI: 10.1504/IJBPM.2008.019991

International Journal of Business Performance Management, 2008 Vol.10 No.4, pp.344 - 365

Published online: 20 Aug 2008 *

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