Incorporating Risk into Technical Efficiency via a Semiparametric Analysis: The Case of ASEAN Banks
Main Article Content
Abstract
The objective of this paper is to incorporate risk in technical efficiency of listed ASEAN banks in a panel data framework for the period 2000 to 2015. Many researchers apply frontier estimation techniques such as data envelopment analysis (DEA) or stochastic frontier analysis (SFA) for their efficiency analysis. However, the banks’ complex production process requires more sophisticated techniques to account for internal structures within the black box so relying only traditional DEA or SFA is not adequate to deal with a multiple-input and multiple-output production technology. To incorporate undesirable outputs such as risk into inefficiency, we rely on the directional distance function (DDF). We employ the DDF under both parametric (SFA) and semi-parametric (SEMSFA) framework to make a comparison efficiency scores with risk adjusted in two scenarios. Our results suggest that risk is an important factor that bank managers should pay more focus to achieve long-term efficiency in ASEAN banks
Keywords:
bank efficiency; risk; directional distance function (DDF); semiparametric estimation of stochastic frontier models (SEMSFA)
References
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Chang, C.-C. (1999). The Nonparametric Risk-Adjusted Efficiency Measurement: An Application to Taiwan’s Major Rural Financial Intermediaries. American Journal of Agricultural Economics, 81(4), 902-913.
Chang, T.-C., & Chiu, Y. H. (2006). Affecting factors on risk-adjusted effciency in Taiwan’s banking industry. Contemporary Economic Policy 24(4), 634-648.
Gardener, E., Molyneux, P., & Nguyen-Linh, H. (2011). Determinants of efficiency in South East Asian banking. The Service Industries Journal, 31(16), 2693-2719.
Huang, T.-H., Chiang, D.-L., & Tsai, C.-M. (2015). Applying the New Metafrontier Directional Distance Function to Compare Banking Efficiencies in Central and Eastern European Countries. Economic Modelling, 44, 188-199.
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Laeven, L. (1999). Risk and Efficiency in East Asian Banks (Vol. 2255). Washington, D.C. : World Bank, Financial Sector Strategy and Policy Department.
Manlagnit, M. C. V. (2011). Cost efficiency, determinants, and risk preferences in banking: A case of stochastic frontier analysis in the Philippines. Journal of Asian Economics, 22, 23-35.
Sarifuddin, S., Ismail, M. K., & Kumaran, V. V. (2015). Comparison of Banking Efficiency in the selected ASEAN Countries during the Global Financial Crisis. PROSIDING PERKEM, 10, 286-293.
Sarmientoa, M., & Galán, J. E. (2015). The Influence of Risk-Taking on Bank Efficiency: Evidence from Colombia. CentER Discussion Paper, 2015-036.
Vidoli, F., & Ferrara, G. (2015). Analyzing Italian citrus sector by semi-nonparametric frontier efficiency models. Empir Econ, 45, 641-658.
Williams, J., & Nguyen, N. (2005). Financial Liberalisation, Crisis, and Restructuring: A Comparative Study of Bank Performance and Bank Governance in South East Asia. Journal of Banking and Finance, 29(8-9), 2119-2154.
Wong, W. P., & Deng, Q. (1999). Efficiency analysis of banks in ASEAN countries. Benchmarking: An International Journal, 23(7), 1798-1817.
Yueh-Cheng Wu, I. W. K. T., Wen-Min Lu, Mohammad Nourani, Qian Long Kweh. (2016). The impact of earnings management on the performance of ASEAN banks. Economic Modelling, 53, 156-165.
Zhu, N., Wang, B., Yu, Z., & Wu, Y. (2016). Technical Efficiency Measurement Incorporating Risk Preferences: An Empirical Analysis of Chinese Commercial Banks. Emerging Markets Finance and Trade, 52, 610-624.
Andor, M., & Hesse, F. (2014). The StoNED age: the departure into a new era of efficiency analysis? A monte carlo comparison of StoNED and the ‘‘oldies’’ (SFA and DEA). J Prod Anal 41, 85-109. doi: 10.1007/s11123-013-0354-y
Berger, A. N., & DeYoung, R. (1997). Problem loans and cost efficiency in commercial banks. Journal of Banking & Finance, 21(6), 849-870.
Berger, A. N., & Humphrey, D. B. (1997). Efficiency of financial institutions: international survey and directions for future research. European Journal of Operational Research, 98, 175-212.
Chan, S.-G., Koh, E. H. Y., Zainir, F., & Yong, C.-C. (2015). Market structure, institutional framework and bank efficiency in ASEAN 5. Journal of Economics and Business, 82, 84-112.
Chang, C.-C. (1999). The Nonparametric Risk-Adjusted Efficiency Measurement: An Application to Taiwan’s Major Rural Financial Intermediaries. American Journal of Agricultural Economics, 81(4), 902-913.
Chang, T.-C., & Chiu, Y. H. (2006). Affecting factors on risk-adjusted effciency in Taiwan’s banking industry. Contemporary Economic Policy 24(4), 634-648.
Gardener, E., Molyneux, P., & Nguyen-Linh, H. (2011). Determinants of efficiency in South East Asian banking. The Service Industries Journal, 31(16), 2693-2719.
Huang, T.-H., Chiang, D.-L., & Tsai, C.-M. (2015). Applying the New Metafrontier Directional Distance Function to Compare Banking Efficiencies in Central and Eastern European Countries. Economic Modelling, 44, 188-199.
Karim, M. Z. A. (2001). Comparative Bank Efficiency across Select ASEAN Countries. ASEAN Economic Bulletin, 18(3), 289-304.
Karim, M. Z. A., Sok-Gee, C., & Sallahudin, H. (2010). Bank efficiency and non-performing loans: Evidence from Malaysia and Singapore. Prague Economic Papers, 2, 118-132. doi: 10.18267/j.pep.367
Khan, S. J. M. (2014). Bank Efficiency in Southeast Asian Countries: The Impact of Environmental Variables. In Handbook on the Emerging Trends in Scientific Research. Malaysia: PAK Publishing Group.
Laeven, L. (1999). Risk and Efficiency in East Asian Banks (Vol. 2255). Washington, D.C. : World Bank, Financial Sector Strategy and Policy Department.
Manlagnit, M. C. V. (2011). Cost efficiency, determinants, and risk preferences in banking: A case of stochastic frontier analysis in the Philippines. Journal of Asian Economics, 22, 23-35.
Sarifuddin, S., Ismail, M. K., & Kumaran, V. V. (2015). Comparison of Banking Efficiency in the selected ASEAN Countries during the Global Financial Crisis. PROSIDING PERKEM, 10, 286-293.
Sarmientoa, M., & Galán, J. E. (2015). The Influence of Risk-Taking on Bank Efficiency: Evidence from Colombia. CentER Discussion Paper, 2015-036.
Vidoli, F., & Ferrara, G. (2015). Analyzing Italian citrus sector by semi-nonparametric frontier efficiency models. Empir Econ, 45, 641-658.
Williams, J., & Nguyen, N. (2005). Financial Liberalisation, Crisis, and Restructuring: A Comparative Study of Bank Performance and Bank Governance in South East Asia. Journal of Banking and Finance, 29(8-9), 2119-2154.
Wong, W. P., & Deng, Q. (1999). Efficiency analysis of banks in ASEAN countries. Benchmarking: An International Journal, 23(7), 1798-1817.
Yueh-Cheng Wu, I. W. K. T., Wen-Min Lu, Mohammad Nourani, Qian Long Kweh. (2016). The impact of earnings management on the performance of ASEAN banks. Economic Modelling, 53, 156-165.
Zhu, N., Wang, B., Yu, Z., & Wu, Y. (2016). Technical Efficiency Measurement Incorporating Risk Preferences: An Empirical Analysis of Chinese Commercial Banks. Emerging Markets Finance and Trade, 52, 610-624.