Banking Sector Efficiency and Productivity Analysis

Qualitative Research in Financial Markets
Efficiency and productivity of banking sector: A critical analysis of literature and design
of conceptual model
Dipasha Sharma Anil K. Sharma Mukesh K. Barua
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Efficiency and
Efficiency and productivity productivity
of banking sector
A critical analysis of literature and
design of conceptual model 195
Dipasha Sharma, Anil K. Sharma and Mukesh K. Barua Received 12 October 2011
Department of Management Studies, Revised 3 February 2012
Accepted 17 April 2012
Indian Institute of Technology Roorkee, Roorkee, India
Abstract
Purpose The purpose of this paper is to discuss a comprehensive literature survey of studies
focusing on the efficiency and productivity of the banking sector using parametric and non-parametric
frontier techniques.
Design/methodology/approach Critically reviewing 106 studies published across the world
from 1994 to 2011, a conceptual framework is developed for the studies assessing the efficiency and
productivity of the banking industry using non-parametric DEA frontier approach.
Findings Both the frontier approaches, parametric and non-parametric, are gaining an edge over
the traditional financial performance measures. In the non-parametric approach, data envelopment
analysis (DEA) is widely applied to measure a banks efficiency and productivity. Studies conducted in
developed countries such as the USA, the UK and Europe are now emerging with the new concepts of
banking efficiency.
Research limitations/implications These findings are based only on the critical review of
106 studies. This study suggests the direction for future research and identifies the gap in existing
literature with the development of a conceptual model.
Originality/value This study is original in nature and included literature published in recent
issues of 2011.
Keywords Banking, Productivity, Efficiency, Parametric and non-parametric frontier approach,
Data envelopment analysis, Productivity rate
Paper type Literature review
1. Introduction
Banking institutions of any nation play a significant role in structuring economic
development and economic growth via the efficient intermediation of funds from
borrowers to savers. A strong banking sector effectively channels funds and financial
products in such a way as to strengthen the financial and economic system of any nation.
Therefore, the sound performance of the banking sector has always been a key issue for
researchers and policy makers charged with ensuring a strong and economically
developed nation. Traditionally, the performance and efficacy of banking institutions is
measured by financial ratios, but this approach has a major demerit in terms of its
subjectivity and reliance on benchmarking ratios (Yeh, 1996). Sherman and Gold (1985)
Qualitative Research in Financial
Markets
The authors express thanks for the suggestions made by two anonymous reviewers and the Vol. 5 No. 2, 2013
Editor, Dr Bruce Burton, which have helped improve the paper. Dipasha Sharma gratefully pp. 195-224
q Emerald Group Publishing Limited
acknowledges the financial support provided by University Grant Commission New Delhi, India, 1755-4179
for her research in the form of a junior research fellowship. DOI 10.1108/QRFM-10-2011-0025
QRFM initiated the frontier analysis approach to bank performance assessment. They argued
5,2 for the application of frontier analysis techniques in bank performance evaluation
instead of financial ratios and other traditional financial measures. The frontier analysis
technique handles multiple inputs-outputs and captures long-term performance, while
helping to separate poor performers from the best institutions. It is a sophisticated
method of benchmarking institutions on the basis of their respective efficiency, while
196 identifying the best practice frontier (Berger and Humphrey, 1997). This concept of
frontier technique for the estimation of efficiency of production units was outlined by
Farrell (1957), on the basis of the primary model developed by Koopmans (1951) and
Debreu (1951). Afterwards parametric and non parametric frontier analysis techniques
have been widely applied in banking efficiency and productivity.
This paper provides a comprehensive review of studies that apply frontier techniques
to the analysis of banking efficiency and productivity, covering investigations from
1994 to 2011. The structure of this paper is as follows: Section 2 describes the conceptual
framework; Section 3 outlines the survey on the basis of conceptual model before
critiquing methodological issues and the selection of approaches, variables and
techniques. Section 4 suggests future research in the area and discusses emerging
operational research techniques in banking and finance. Section 5 concludes the survey.
2. Framework for efficiency and productivity

In our study we have reviewed 106 studies, published in various international journals,
conferences, books, thesis and working papers. A comprehensive snapshot of
106 reviewed studies is given in Table AI at the end of the paper and all other analysis,
tables and figures are structured on the basis of Table AI. The distribution of existing
studies from various sources is given in Table I. As shown in Table I, the most frequent
sources of publications are the Journal of Banking and Finance (24); followed by
European Journal of Operational Research (11), Omega (4), The Journal of the Operational
Research Society (4) and so on (figures given in parenthesis present the number of
publications in respective journals). The reviewed studies also include international
conference papers available on internet web sites, while the others present the thesis,
working papers and books on banking efficiency and productivity.
In our survey we have included studies from the year 1994 to 2011. Year wise
classification of reviewing studies is given in Table II.
Figure 1 shows the diagrammatic view of year wise publication of existing literature
from the year 1994 to 2011. Number of publications is increasing each year and it is clear
from the given figure that the frontier practices in banking performance and efficiency
evaluation is gaining popularity year by year. We have reviewed maximum number of
studies from recent publications in our study; 2010 (16), followed by the year 2009 (13)
(figures given in parenthesis present no. of publications in a particular year).
We further classified our survey of literature on the basis of studies conducted on a
particular country. Table III provides a snapshot of country wise studies in our reviewed
literature. Studies were conducted in different countries as well as cross-country analysis
was done by the researchers. Researchers conducted good number of studies in
European countries; comparison of efficiency across the European Union (Pastor et al.,
1997), productivity growth among the European countries (Casu and Molyneux, 2003).
The UK is among the top choice for European country analysis. Figure 2 shows the
country wise publications of literature. A good number of studies were conducted in the
Efficiency and
Particulars No. of papers
productivity
Journals
Journal of Banking and Finance 24
European Journal of Operational Research 11
Omega 04
Managerial Finance 04 197
The Journal of the Operational Research Society 04
SSRN 04
Socio Economic Planning Sciences 03
Interfaces 02
Economic Modeling 02
Applied Financial Economics 02
Management Accounting Research 02
Journal of High Technology Management Research 02
Unitar e-Journal 01
ICRA BULLETIN 01
Review of Financial Economies 01
International Journal of Operations Research 01
Eurasian Journal of Business and Economics 01
International Journal of Business Performance Management 01
International Review of Economics and Finance 01
Journal of Asian Economics 01
The Pakistan Development Review 01
Applied Economics 01
International Journal of Operational Research 01
Research in International Business and Finance 01
Journal of Asian Economies 01
MPRA 01
Journal of Business, Finance and Accounting 01
Journal of Multinational Financial Management 01
Investment Management and Financial Innovations 01
China Economic Review 01
International Journal of Productivity and Performance Management 01
Public Choice 01
International Journal of Production Economies 01
Applied Mathematics and Computation 01
International Journal of Bank Marketing 01
Expert System with Application 01
Journal of Business Research 01
Computers and Operational Research 01
International Journal of Business Management 01
International conference papers 02
Working papers and othera 13
Total 106 Table I.
Distribution of reviewed
Note: aOther includes thesis, books and surveys available on internet web sites articles from various
Source: Authors on calculations based on Table AI in the Appendix sources
banking industry of developed nations like the USA, the UK, Europe. Developing nations
are also gaining attention of researchers as within India only, 24 studies were conducted
by the eminent researchers during pre and post liberalization periods of Indian banking
sector (Bhattacharyya et al., 1997; Saha and Ravisankar, 2000; Sathye, 2003). It clearly
QRFM
S. no. Year No. of publication
5,2
1 1994 02
2 1995 01
3 1996 01
4 1997 04
198 5 1998 01
6 1999 03
7 2000 01
8 2001 02
9 2002 04
10 2003 10
11 2004 12
12 2005 07
13 2006 11
14 2007 07
15 2008 06
16 2009 13
17 2010 16
18 2011 05
Total 106
Table II.
Year wise publications Source: Based on authors own calculation of reviewed studies given in Table AI
No. of Publications
Year wise publications

20
15
10
Figure 1. 5
Year wise publication 0
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
of studies
19
19
19
19
19
19
20
20
20
20
20
20
20
20
20
20
20
20
Years
Country No. of publications
India 24
Other 19
Europe 17
USA 12
Cross country 10
UK 5
Asia 3
Australia 3
China 3
Table III. Note: Other includes Hong Kong, Singapore, Greece, Spain, Thailand, Taiwan, Iran, Pakistan,
Country wise Bangladesh, Japan, Italy, Poland, France and Canada
publications Source: Based on authors own calculation of reviewed studies given in Table AI
No. of Publications Efficiency and
productivity
other US UK
20% 13% 5%
China
3% 199
Australia
3%
Asia
3% India
25%
Figure 2.
Europe Country wise
18% Croos country publications of studies

10%
depicts the popularity of frontier techniques in developing country research. Studies on

banking efficiency in developed nations like the USA, the UK, and Europe are gaining
new dimensions with the new concepts of shareholder value efficiency (Fiordelisi and
Molyneux, 2010a, b), market returns (Beccalli et al., 2006), etc. but in developing nations
there is a lack of literature on these new paradigms of banking efficiency.
3. Literature on efficiency and productivity/development of conceptual

model
This section presents a conceptual flow chart of studies and break up of literature on
the basis of the focus areas of efficiency and productivity change of the banking sector.
Table IV represents the focus areas of reviewing studies. Most of the studies are
focusing on efficiency/productivity estimation and empirical evidences on their
determinants (29) (the figure given in parenthesis present number of publications in the
focus area of research). New emerging areas of shareholder value and impact of stock
Focus No. of papers
(a) Efficiency and productivity estimation 20

(b) Empirical evidences on determinants of efficiency and productivity 37
(c) Efficiency, productivity: deregulation and reforms 7
(d) Bank branch efficiency 8
(e) Efficiency and mergers/acquisition 3
(f) Efficiency and shareholder value, share market return 8
(g) Efficiency and productivity: concepts and models 13
(h) Literature survey 6
(i) Future 4
Total 106
Note: Future represents the direction of future research with the application of neural networking,
fuzzy logic, analytical hierarchical process, and bootstrapping in efficiency estimation of the banking
sector Table IV.
Source: Based on authors own calculation of reviewed studies given in Table AI Focus areas of literature
QRFM market on efficiency are also gaining consideration in the banking industry. The future
5,2 direction of research is emerging with the concepts of fuzzy, neural networking,
artificial intelligence and other operational research based techniques in efficiency and
productivity change of the banking sector.
Figure 3 diagrammatically shows the distribution of focus areas of reviewing studies.
a-i show the breakup of literature in focus areas given in Table IV. a represents the studies
200 in the focus area of efficiency and productivity estimation, b depicts the studies with the
empirical evidences on determinants of efficiency and productivity, c shows the effects of
deregulation and reforms on efficiency and productivity, d describes studies in bank
branch efficiency, e denotes studies on the effects of mergers and acquisition on
efficiency, f presents the studies on efficiency and shareholder value/share market return,
g shows studies on concepts and models of efficiency and productivity, h describes
studies on literature surveys whereas i denotes studies on future research areas.
Later we classified studies on the basis of various methodologies of research.
We identified four categories of methodologies used by the researchers in existing

literature which are conceptual, descriptive, empirical and exploratory cross-sectional.
Conceptual studies are based on the concepts, models and limitations of particular
approaches (parametric and non parametric) and the techniques used under different
approaches. A descriptive study provides application frameworks and explanations of
different issues of frontier approaches. An empirical study is the study which empirically
estimates and evaluates the efficiency and productivity change using a database. Studies
done on the basis of surveys are defined as exploratory cross-sectional studies. Table V
depicts the distribution of methodologies in studies under review of our study.
Figure 4 shows a snapshot of distribution of methodologies and it clarifies that most
of the studies are empirical in nature.
4%
6% (a) Efficiency and productivity estimation
(b) evidence on determinants
12% 19%
(c) deregulation and reforms
(d) bank branch efficiency
7% (e) meregers/acquisition
3% (f) shareholder value/market return
35%
7% (g) concepts and models
Figure 3. 7% (h) literature survey
Focus area of literature
(i) future
Methodology No. of papers
Empirical 83
Conceptual 7
Descriptive 11
Table V. Exploratory cross sectional 5
Distribution of Total 106
methodologies used in
existing literature Source: Based on authors own calculation of reviewed studies given in Table AI
On the basis of the distribution of literature and reviewed studies, we design a Efficiency and
conceptual flow chart to represent each and every necessary step required in the study productivity
based on frontier approach of banking sector efficiency. This flowchart is designed on
the basis of critical review of existing studies and studies on the literature reviews
conducted by various researchers (Berger and Humphrey, 1997; Ahmad Mokhtar et al.,
2006; Emrouznejad et al., 2008; Fethi and Pasiouras, 2009). This conceptual model
depicts the step by step approach of research to evaluate and assess the efficiency and 201
productivity change of the banking sector. It also takes into account of determining
variables and effects on the various corporate events. Figure 5 shows the conceptual
framework of this flow chart. This flow chart clearly exhibits each and every necessary
step to develop a study on efficiency and productivity estimation of the banking
industry. Details and theoretical background of each step, with its empirical reliance is
given in the later section of this study.
The first and foremost step is to set an objective to evaluate the efficiency and
productivity change of the banking industry. After framing the research question, the next
step is to choose the efficiency measure to assess and productivity change (Section 3.1.1).
Now the selection of appropriate frontier approach is the necessity of situation as literature
has two approaches, parametric and non parametric (Section 3.1.1.1). To determine return
to scale and input/output orientation is the next agenda in our framework (Sections 3.1.1.2
and 3.1.1.3). Selection of the relevant set of input-output, is the most important aspect of
efficiency estimation as we define efficiency as an optimal combination of input-output. To
define inputs (resources) and output, literature has production approach, intermediation
approach; value added approach, and operating approach (Section 3.1.1.4). These steps of
first stage analysis reveal the relative efficiency and productivity scores. These scores are
further regressed in second stage analysis to explore the nature of determining variables
and the impact on various corporate events. Determinants of efficiency are in general
classified as bank specific variables, macroeconomic variables and regulatory variables
(Section 3.1.2). Various issues on effects of efficiency are elaborated in existing literature,
with the emerging concept of shareholder value efficiency, stock market return, mergers
and acquisitions, bankruptcy, and bank branch efficiency (Sections 3.1.3.1-3.1.3.4). Each
and every step of this flowchart is elaborated with its theoretical concepts and empirical
evidences from reviewing studies and existing literature.
3.1 Conceptual model

The following section of the paper elaborates the components of Figure 5 and explains
various aspects of the literature consulted for the present study.
Distribution of methodologies used in studies

Exploratory cross
Descriptive
sectional
10%
5%
Conceptual Figure 4.
7% Distribution of
Empirical methodologies used in
78% the reviewed studies
QRFM To Evaluate Efficiency and Productivity Change of Banking Sector: Concept, Determinants, and Effects
5,2
Efficiency Measures Productivity
Technical efficiency Allocative efficiency

Total Factor productivity Change
202 Cost efficiency Profit efficiency
Selection of frontier
Parametric Non Parametric
DFA SFA TFA FDH DEA
MPI
Return to scale
CRS VRS
Input/Output orientation
Input Oriented Output Oriented

Selection of Input/output
Production approach Intermediation approach Value Added approach Operating approach
Efficiency scores and Productivity Change
Determinants
Effects
Regulatory: Ownership, Time,

Stock market
Age, Origin, Deregulation,
Macroeconomic return
Reforms, liberalization
Figure 5. : GDP, Inflation
Conceptual framework of
banking efficiency and Bank specific: Size, profitability,
loan quality, capital adequacy, Mergers and bankruptcy
productivity change liquidity, Operating expenses.
Shareholder Value efficiency
3.1.1 Efficiency measures. Any producing unit is said to be technically efficient

when it can produce the maximum amount of output using the given level of
input, or it can produce given level of output using minimum amount of input.
Efficiency in general is a technical term, it is a sign of efficacy of an individual
bank, and benchmarking of the industry can be evaluated by peer group (banks)
efficiency.
Banks efficiency can be evaluated on the basis of two criteria:
(1) technical efficiency (Farrell, 1957); and
(2) allocative or economic efficiency (Farrell, 1957; Leibenstein, 1966); allocative
efficiency is further classified into two types of efficiency, one is cost efficiency
(CE) and the other one is profit efficiency (PE) (Berger and Mester, 1997).
On the other hand, productivity can be assessed by total factor productivity change Efficiency and
(TFPCH). Table VI shows the efficiency measures estimated in reviewing studies. The productivity
overall technical efficiency (OTE) which includes pure technical efficiency and scale
efficiency is widely evaluated by these studies.
Figure 6 shows the percentage wise composition of various efficiency measures.
3.1.1.1 Selection of frontier approach. After the selection of efficiency measures, the
next step is to choose the appropriate frontier approach for the analysis. In the 203
literature generally there are two main frontier practices:
(1) parametric approach based on the econometric model specification; the other
one is
(2) non parametric approach based on linear programming techniques.
In parametric approach, stochastic frontier analysis (SFA) (Aigner et al., 1977; Meusen
and Van Den Broeck, 1977), distribution free approach (DFA) (Berger, 1993) and thick
frontier approach (TFA) (Berger and Humphrey, 1991, 1992) are the most practicing
techniques. data envelopment analysis (DEA) (Charnes et al., 1978) and free disposal hull
(FDH) (Deprins et al., 1984) are the common techniques in non parametric approach.
Similarly productivity can also be assessed by parametric and non parametric
approaches. Parametric approach results production, cost or revenue functions, whereas
non parametric approach follows the index number method. In non parametric approach
there are Fischer (1922) index, Tornqvist (1936) index and Malmquist (1953) index.
Malmquist is the most popular index method to assess TFPCH, which can be further
decomposed into, technological change (TECHCH), efficiency change (EFFCH), pure
technical efficiency change (PEFCH), scale efficiency change (SECH). Around 25 percent
studies from the reviewed literature estimated TFPCH using the Malmquist productivity
index (MPI) (Mukharjee et al., 2001; Sufian, 2011).
Each of the frontier techniques has its own merits and demerits. The parametric
approach allows the effect of random error in the model but it needs to specify the
production function and which leads to subjectivity in the results. Non parametric DEA
Efficiency measure No. of studies
OTE 41
CE 26 Table VI.
PE 15 Composition of efficiency
measures in
Source: Studies based on only empirical assessment of efficiency measures are included in this table reviewed studies
18%
Overall Technical Efficiency OTE
50%
Cost Efficiency
32%
Figure 6.
Profit Efficiency
Efficiency measures
QRFM approach is simple and easy to calculate as there is no need to specify any functional forms
5,2 but it does not take into account the effect of random error and environmental noise.
Existing literature urge in support of non parametric approach, DEA for assessment
of banking efficiency, while parametric approach SFA is widely applied for CE and
bank branch efficiency (Berger and Humphrey, 1997). DEA is also a main technique to
evaluate the OTE while SFA is frequently used in the reviewed studies to assess cost,
204 profit and revenue efficiency. Table VII depicts the classification of the approaches
used in the reviewed literature.
Figure 7 clearly shows the popularity of non parametric DEA for the assessment of
banking efficiency. 75 percent of reviewing studies apply DEA to assess the efficiency
and productivity of the banking sector.
3.1.1.2 Scale of operation. Set of inputs-outputs are necessary to assess the level of
efficiency of a given firm or benchmarking of firms in a given set of industry. For this
first we need to define the scale of operation in an industry. If all firms are producing a
constant optimal level of output in an industry then it is said to be a constant return to

scale (CRS). Charnes et al. (1978) developed a DEA model based on CRS, this model
assumes that all the decision-making units (DMUs) are performing on an optimal scale
of operations but it is very unpractical and in real scenario firms produce in variable
return to scale (VRS) of economies. Then further Banker et al. (1984) extended the DEA
model to the case of VRS. Therefore, in DEA method two different models are
Frontier approach No. of studies
DEA 66
SFA 16
DEA and SFA both 6
Total 88
Table VII.
Parametric and non Source: Based on the empirical studies only, conceptual and theoretical studies are excluded from
parametric approach calculation
Studies classified as Parametric and Non Parametric

approaches
Both
7%
SFA
18%
Figure 7.
Classification of studies DEA
on the basis of frontier 75%
approach
applicable for different scale of economies of an industry, one is CRS also known as a Efficiency and
CCR model (Charnes et al., 1978) and another is VRS also known as a BCC model productivity
(Banker et al., 1984). The VRS model is widely applied in the literature as it is based on
a more practical aspect of market conditions (Casu and Molyneux, 2003; Sathye, 2003;
Gupta et al., 2008; Sufian, 2009). Some of the researchers comparatively analyzed both
the CRS and VRS approaches in their studies (Grigorian and Manole, 2002; Canhoto
and Dermine, 2003; Luo, 2003). 205
3.1.1.3 Input-output orientation. Efficiency can be estimated from the two different
aspects one is output maximization while another is input minimization. These aspects
also known as Input orientation and Output orientation. The researcher needs to
specify whether the problem is input oriented (input minimization, cost minimization) or
output oriented (profit maximization, production maximization). Studies in the banking
industry, in general prefer input orientation as any bank may have higher control of its
inputs (expenses) rather than outputs (income). Some studies provide findings for both
orientations; results are same under CRS but different under the VRS approach
(Beccalli et al., 2006; Siriopoulos and Tziogkidis, 2010).
3.1.1.4 Approach for selection of input-output combination. Selection of input-output
combination is a very complex issue, as any DMU may have n number of inputs and
outputs. From the literature we have identified following approaches for the selection
of variables:
.
production approach;
.
intermediation approach;
.
value added approach;
.
asset approach; and
.
operating approach.
Production and intermediation approach are the main approaches used in the literature.
The production approach assumes banks as a production unit, which produce loans,
deposits and other financial services using inputs such as labor (no. of employees,
personnel expenses) and capital (fixed assets and other assets). While the intermediation
approach perceives banks as an intermediary of financial services between borrower and
savers, it generates loans and other earning assets using deposits and labor (Sealey and
Lindley, 1977). The production approach treats deposits as an output variable while
intermediation approach perceives deposits as an input variable. The intermediation
approach is appropriate for banks efficiency as banks serve as an intermediary,
production approach somewhat is more practical for bank branch efficiency (Berger and
Humphrey, 1997). The asset approach is in line with the intermediation approach
(Camanho and Dyson, 2005). Deposits and other liabilities along with labor and capital are
treated as inputs whereas output includes only bank assets generate revenue such as loans
or investments (Ray and Das, 2010). Drake et al. (2006) proposed a value added approach
(revenue approach) in DEA model. In this approach items which create value for the bank
treated as output. Therefore, deposits and loans are treated as output in this approach.
In addition the operating approach also known as income approach perceives bank as a
business unit generating revenue (income) from total cost and expenses incurred. It takes
interest expenses and noninterest expenses as inputs, whereas interest income and
QRFM noninterest income as output variables (Das and Ghosh, 2006). Table VIII presents the
5,2 distribution of various approaches for input-output selection under review studies.
It clearly depicts the intermediation approach as a widely applied approach in
banking sector followed by production approach mainly used in bank branches and
frontier techniques. Some of the studies applied mixed combination of production and
intermediation approach resulting in profit approach, marketability approach (Luo, 2003).
206 Figure 8 diagrammatically shows the distribution of various approaches. Many
authors applied more than one approach in their studies to show the variations in results.
Labor, capital, purchased funds and expenses or prices of labor and capital are most
common input variables found in reviewing studies, whereas loans and advances, other
earning assets and fee based income are common for output specification. Casu et al.
(2004), Molyneux and Williams (2005) also included off-balance sheet items and
securities as output variables. Sathye (2003) developed two different models on the basis
of quantity and value, in quantity based model deposits and staff number taken as input
and net loans, noninterest income taken as output and in value based model interest
expense and noninterest expenses taken as input whereas interest income and
noninterest income as output variables. Some studies disaggregated deposits into retail
and wholesale deposits (Drake and Hall, 2003), transaction deposits and non transaction
deposits (Mukharjee et al., 2001), and loans into commercial loans, industrial loans,
consumer loans, real estate loans (Mukharjee et al., 2001). Debnath and Shankar (2008)
Approach No. of studies
Production approach 21
Intermediation approach 56
Value added approach 15
Other approach 6
Table VIII. Note: Other includes asset approach, profit approach, operating approach, marketability approach
Approach for and mixed approaches
input-output selection Source: Based on authors own calculation of reviewed studies given in Table AI
Approaches for Input/output selection

Other
6% Production
22%
Value added
15%
Figure 8.
Distribution of approaches
for input-output
combination Intermediation
57%
treated profit after tax (PAT) as an output variable. Deviating from the same length of Efficiency and
literature Halkos and Salamouris (2004) introduced financial ratios as output variables productivity
without any input variable in the model. Table IX presents the set of input-output
variables often used in literature and studies.
3.1.2 Determinants of efficiency and productivity. Several studies attempt two stage
approach to determine the influencing factors of efficiency and productivity change.
In first stage researchers assess efficiency and productivity change and in the later 207
stage these efficiency scores and productivity change are regressed on set of
determining variables. These determining factors are categorized into three categories:
(1) bank specific variables;
(2) macro economic variables; and
(3) regulatory variables.
Most common bank specific factors are size, market share, banks profitability and capital
adequacy (Mukharjee et al., 2001; Sensarma, 2006; Das and Ghosh, 2006; Barros et al., 2007;
Staub et al., 2010).
Economic conditions (GDP, GDP per capita, GDP growth rate, per capita income,
inflation, inflation ratio, fiscal deficit) and stock market capitalization are common
macroeconomic variables in the studies (Ataullah and Le, 2006; Jaffry et al., 2007;
Sufian, 2009).
Regulatory specific variables are in general dummy variables in nature, such as
ownership structure, origin, age, financial reforms (Isik and Darrat, 2009; Sufian, 2009,
2011). Table X shows the summary of determining variables of efficiency and productivity.
In this two stage approach, efficiency scores and productivity change scores
are regressed on the determining factors. These scores can be regressed using
Tobit regression (Casu and Molyneux, 2003; Drake et al., 2006; Das and Ghosh, 2006),
Variables Description
Input
Labor No. of full time employees, personnel expenses, provisions for
employees
Capital Fixed assets, liquid assets, total assets, equity
Purchased funds Deposits, borrowings
Expenses Interest expenses, operational expenses, noninterest expenses,
other admin expenses
Other No. of branches, no. of ATMs
Output
Deposits Transaction deposits, non-transaction deposits, demand
deposits, fixed deposits, saving deposits,
Loans and advances; investments, Commercial and industrial loans, consumer loans, real estate
other earning assets loans
Fee based income Interest income, non interest income
Off balance sheet items Operating lease, securitized debt
Securities Equity, interbank loans
PAT Profit after tax, operating profit Table IX.
Specification of
Source: Based on authors own calculation of reviewed studies given in Table AI input/output variables
QRFM
Variables Description
5,2
Bank specific variables
Banks profitability Return on assets (ROA), return on equity (ROE), operating profit, business
per employees, net operating income, leverage
Market share Total deposits
208 Size Total assets
Liquidity Total loans over total assets
Asset quality Loan loss provisions over total assets
Capital adequacy Capital adequacy ratio, book value of shareholder equity over total assets
Risk Total capital over total assets, equity over total assets
Macro economic variables
Economic conditions GDP, GDP per capita, GDP growth rate, per capita income, inflation,
inflation ratio, fiscal deficit
Market capitalization Stock market capitalization
Regulatory variables
Ownership Dummy for public, private, and foreign ownership

Specialization Specialization activity of banks (investment banking, corporate banking)
Origin country Dummy for country specific origin
Branch region Dummy for region of branches (rural/urban)
Age New/old bank
Time Time trend
Financial reform/policy Dummy for regulatory reforms in a particular year
Table X. reform
Variables for Listed bank Listed in stock exchange
determinants of efficiency
and productivity Source: Based on authors own calculation of reviewed studies given in Table AI
Fixed and random effect panel data regression (Fiordelisi and Molyneux, 2010a, b;
Staub et al., 2010; Bonin et al., 2005), ordinary least square (OLS) (Sufian et al., 2007;
Ataullah and Le, 2006), generalized method of moments (GMM) (Casu and Girardone,
2010), logit and probit regression (Barros et al., 2007; Isik and Darrat, 2009).
General linear regression is not at all appropriate regression technique in the second
stage efficiency analysis as the dependent variable (efficiency score) is a range variable
(0 to 1) and it is censored variable. In logit and probit regression techniques dependent
variable (efficiency score) converted into a dummy group of most and least efficient,
with 1 for the most efficient and 0 for the others. Most efficient DMU (any bank in
sample) scores 1 on efficiency frontier of the peer group. Table XI depicts the second
stage regression techniques applied in empirical studies.
Figure 9 diagrammatically shows the techniques used, and concludes panel data
regression and Tobit are widely applied techniques whereas few studies also applied
GMM, logit, probit and stochastic regression to assess the impact of determinants on
efficiency and productivity change of the banking industry.
3.1.3 Impact of efficiency and productivity change. Several authors studied the impact
of efficiency and productivity change on stock market return, shareholder value, mergers
and acquisition.
3.1.3.1 Efficiency and shareholder wealth. Banks like other business units also seek
to maximization of shareholder wealth and therefore Fiordelisi (2007) developed a new
measure of bank performance, termed as shareholder value efficiency. A bank is said
to be shareholder value efficient when it produces maximum possible economic value Efficiency and
added (EVA) using given level of input and outputs (Fiordelisi, 2007). This study was a productivity
cross country study of European countries and stochastic frontier technique used to
calculate shareholder value efficiency. After this few studies assessed the impact of
efficiency on shareholder wealth, regressing shareholder value as the dependent
variable with the components of efficiency and productivity (Fiordelisi and Molyneux,
2007, 2010a, b). All of the above mentioned studies are conducted in European 209
countries. This is an emerging area in the research on efficiency and productivity of the
banking sector. To the best of our knowledge, no study on this aspect has been found
in developing countries so far.
3.1.3.2 Stock return and efficiency. Studies have investigated the impact of
efficiency and productivity on stock market performance and share market prices to
assess the financial performance of banks in a more holistic way. Beccalli et al. (2006)
investigated the relationship between percentage changes in the stock prices over the
time period with percentage changes in the CE. This study explored the association of
CE and stock prices in the banking industry of European countries. Sufian and Majid
(2007) utilized the DEA window analysis method to investigate the relationship
between X-efficiency (technical efficiency) and share prices in Singapore banking
industry. Majid et al. (2008) applied three stage model to examine the empirical impact
of efficiency on share prices in China. However, Panel data regression and OLS is
applied in most of the studies.
3.1.3.3 Mergers and acquisition and efficiency. Efficiency and productivity change
has a significant impact on corporate events and decision-making under different
scenario of mergers, acquisition and bankruptcy. Krishnasamy et al. (2003) assessed
Second stage regression techniques No. of studies
Tobit regression 10
Panel data regression 11
Simple regression 6
Other 13
Note: Other includes GMM estimation, feasible generalized least square (FGLS), logit, probit, and Table XI.
stochastic regression Second stage regression
Source: Based on authors own calculation of reviewed studies given in Table AI techniques
Second stage Regression techniques for determinants

Tobit
Other 25%
33%
Figure 9.
Panel Second stage regression
OLS techniques
15% 27%
QRFM the post mergers banks productivity of Malaysian banking industry using MPI and
5,2 found that eight out of total ten merged banks improved their productivity. While
Halkos and Salamouris (2004) reported in their study on Greece banking that efficiency
increases with the mergers and acquisition. Kaur and Kaur (2010) studied the Indian
banking sector and assessed the impact of mergers on CE and found that merger led to
a higher level of cost efficiencies for the merging banks.
210 3.1.3.4 Bank branch efficiency. Apart from the efficiency of banking institutions as a
whole, the literature also contributes towards the efficiency of bank branches. The
production approach in general is more applicable in bank branch efficiency as output
is measured in terms of the number of transactions (Zenios et al., 1999; Camanho and
Dyson, 1999). Camanho and Dyson (2005) applied production and value added model
to assess CE of 144 bank branches using DEA whereas Paradi et al. (2011) applied
production, intermediary and profitability model of DEA. Number of branches, the
number of administrative and clerical staff and operating expenses are main input
variables whereas the number of transactions, number of ATMs and number of

accounts, deposits, loan are main output variables. Manandhar and Tang (2002)
developed a framework for bank branch efficiency and benchmarking including
internal service quality aspects of banking. Meepadung et al. (2009) focused on
information technology (IT) based banking services and therefore consider employee
perceptions of service quality as an input variable. This study further applied
exploratory factor analysis on qualitative variables and then DEA to assess operating
and PE of bank branches.
4. Way to future
Application of operational research and artificial intelligence techniques in the DEA and
SFA are paving a new way to future direction of research. With the application of fuzzy
logic, neural networking, Analytical hierarchical process (AHP) and bootstrapping,
results of studies are providing holistic insights of banks performance and efficiency.
Fuzzy and artificial intelligence techniques deal with the imprecise and ambiguous data
in the DEA (Hatami-Marbini et al., 2011). Azadeh et al. (2011) integrated AHP with DEA
to assess and optimize personnel productivity in large industrial bank of Iran. This
integrated approach of DEA and AHP is capable of dealing with both qualitative and
quantitative data in banking. AHP is more purposeful in the case of qualitative data
modeling in banking efficiency and productivity. The bootstrapping procedure is widely
applied in DEA research to overcome the dependency problem in DEA efficiency scores
and sensitivity analysis of second stage regression results (Casu and Molyneux, 2003;
Tortosa-Ausina et al., 2008; Matthews and Zhang, 2010).
5. Conclusion
Efficiency is an indicator of performance and frontier analysis techniques are recognized
as an important technique for performance measurement in banking and financial
institutions. Country wise publication of studies depicts good number of studies in
developed and developing nations but in emerging areas of shareholder value efficiency
and market return evidences, developing nations are lagging behind. Most of the
cross-country studies are based on European countries. Around 80 percent reviewed
studies are empirical in nature conducted in different countries and across countries.
In case of parametric and non parametric frontier analysis techniques, there is no Efficiency and
such evidence in the literature on the superiority of any technique over another but still productivity
a non parametric approach DEA is easy, simple and widely applied to measure the
OTE of any financial institution. Parametric SFA is an econometric specification
technique, taking into account random error and noise of the environment and more
suitable for ambiguous data and measurement of cost, profit and revenue efficiency. The
production approach is not so far applied for bank efficiency whereas intermediation 211
approach, mixed approach, asset approach (similar to intermediation) and operating
approach are more appropriate for selection of input-output. Tobit and panel data
regression techniques are most suitable for second stage regression of determinants of
efficiency and productivity change.
Bank branch efficiency, impact of efficiency of corporate events (mergers,
acquisition and bankruptcy) is seeking the attention of researchers and policy makers.
The linkage between banking efficiency, productivity change and market return
is an emerging area. This linkage may provide a holistic picture of performance of

banking industry considering whole banking system. Further research is needed for
implementation of artificial intelligence techniques to remove out ambiguity in data. So
that managerial and regulatory decision-making on banking policy formulation and
performance metrics would strengthen the banking system.
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(The Appendix follows overleaf.)

5,2
218
QRFM
Table AI.
of 106 reviewed studies

Comprehensive snapshot
Focus
S. no. Author (year) area Methodology Findings
Appendix
1 Casu et al. (2004) (Europe) a Empirical Comparison of parametric (SFA) and non parametric (DEA) techniques
2 Molyneux and Williams (2005) (Europe) a Empirical Best practice co-operative banks have moved further away from other
banks
3 Chakrabarti and Chawla (2005) (India) a Empirical Comparison of production and intermediation approach
4 Sahoo and Tone (2009) (India) a Empirical Cost gap of the short-run cost from the actual cost is higher for the
public banks than private banks
5 Sathye (2003) (India) a Empirical Application of two DEA (input-output) models on the basis of quantity
and value
6 Debnath and Shankar (2008) (India) a Empirical Among medium sized banks, no nationalized banks are efficient
7 Saha and Ravisankar (2000) (India) a Empirical Public sector banks have improved their efficiency during the period of
study
8 Sahoo et al. (2007) (India) a Empirical Private bank showing higher CE than nationalized banks
9 Park and Weber (2006) (Korea) a Empirical Banking industry experienced productivity growth due to technical
progress
10 Kao and Liu (2004) (Taiwan) a Empirical Calculated efficiency scores falls within the predicted range of
performance
11 Rezvanian and Mehdian (2002) (Singapore) a Empirical Economies of scale for all banks regardless of their size
12 Kwan (2003) (Asia) a Empirical After controlling for loan quality, liquidity, capitalization, and output
mix per unit bank; operating costs are found to vary significantly across
Asian countries and over time
13 Luo (2003) (USA) a Empirical Large banks acquire relatively lower level of marketability efficiency
14 Bruce Ho and Dash Wu (2009) (Taiwan) a Empirical Application of DEA and principal component analysis to assess online
banking performance
15 Casu and Girardone (2010) (EU) a Empirical Supporting evidence of convergence of efficiency levels towards an EU
average
16 Drake and Hall (2003) ( Japan) a Empirical Controlling for the exogenous impact of problem loans is important for
the smaller regional banks
17 Meepadung et al. (2009) (Thailand) a Empirical IT-based transactions at the branch level have a significant impact on
PE
18 Resti (1997) (Italy) a Empirical High variance in efficiency scores of two approaches
19 Pastor et al. (1997) (USA and Europe) a Empirical Evidences of scale inefficiencies found in the Australian, German and
US banking system
(continued)
Focus
20 Usman et al. (2010) (Pakistan) a Empirical The scale inefficiency is the main source of OTE
21 Staub et al. (2010) (Brazil) b Empirical State-owned banks are significantly more cost efficient than foreign and
private bank
22 Mukharjee et al. (2001) (USA) b Empirical Larger asset size and specialization of product mix associate with higher
productivity growth while higher equity to assets associate with lower
productivity growth
23 Bonin et al. (2005) (Europe) b Empirical Foreign banks are more cost efficient than its counter parts
24 Barros et al. (2007) (Europe) b Empirical Smaller sized banks with higher loan-intensity and foreign banks from
countries upholding common law traditions have a higher probability of
best performance
25 Miller and Noulas (1996) (USA) b Empirical Larger and more profitable banks have higher levels of technical
efficiency
26 Sathye (2002) (Australia) b Empirical No association was found between size and productivity
27 Casu and Molyneux (2003) (Europe) b Empirical Efficiency differences determined by country-specific factors
28 Nakane and Weintraub (2005) (Brazil) b Empirical State-owned banks are less productive than their private peers, and that
privatization has increased productivity
29 Koutsomanoli-Filippaki et al. (2009) b Empirical Foreign banks outperform in terms of efficiency and productivity gains
(Europe)
30 Tanna (2009) (75country) b Empirical FDI has a negative short term effect but positive long term effect on TFP
change
31 Lozano-Vivas and Pasiouras b Empirical Inclusion of non-traditional outputs does not alter the directional impact
(2010)(85countries) of environmental variables on bank inefficiency
32 Sensarma (2006) (India) b Empirical Foreign banks have been the worst performer as compared with state
owned and private banks
33 Ray and Das (2010) (India) b Empirical Ownership explaining the efficiency differential of banks
34 Das and Ghosh (2006) (India) b Empirical Capital adequacy ratio shows positive association with efficiency
35 Kumar and Gulati (2010) (India) b Empirical Strong presence of sigma and beta convergence in CE levels of public
sector
36 Gupta et al. (2008) (India) b Empirical Capital adequacy ratio and profitability show positive relation with
efficiency
(continued)
productivity
Efficiency and
Table AI.
219
5,2
220
QRFM
Table AI.
Focus
37 Shanmugam and Das (2004) (India) b Empirical State bank group and foreign banks are more efficient than their
counterparts
38 Das et al. (2004) (India) b Empirical Bank size, ownership and being listed on stock exchange have positive
impact on PE
39 Sanyal and Shankar (2011) (India) b Empirical Competition has a positive impact on productivity for the old Indian
private banks
40 Galagadera and Edirisuirya (2004) (India) b Empirical Smaller banks are less efficient and highly DEA-efficient banks have a
high equity to assets and high return to average equity ratios
41 Jaffry et al. (2007) (India, Pakistan and b Empirical India and Bangladesh experienced immediate and sustained growth in
Bangladesh) technical efficiency, whereas Pakistan endured a reduction in efficiency
during study period
42 Mohan (2005) (India) b Descriptive Efficiency and technology change is consistent in Indian banking sector
43 Ataullah et al. (2004) (India and Pakistan) b Empirical Banks are efficient in generating earning asset due to high non
performing loans
44 Sufian (2009) (Malaysia) b Empirical Efficiency is positively associated with expense preference behavior and
economic condition whereas negatively associated with loan intensity of
banks
45 Sufian (2010) (Malaysia) b Empirical Productivity is positively associated with being listed whereas negative
with foreign ownership, and also foreign banks depicts a productivity
regress during study period
46 Matthews and Zhang (2010) (China) b Empirical Bootstrapping and MPI is applied to study TFP change in the banking
sector of China
47 Drake et al. (2006) (Hong Kong) b Empirical Differential impacts of environmental factors on different size groups
and financial sectors
48 Canhoto and Dermine (2003) (Europe) b Empirical The new banks dominate the old banks in terms of average efficiency
scores
49 Berger et al. (2009) (China) b Empirical Big four banks are the least efficient whereas foreign banks are the most
efficient
50 Al-Muharrami (2007 Arab) (GCC) b Empirical Downward trend in productivity during the study period
51 Rossi et al. (2005) (Europe) b Empirical Negative correlation between problem loan and efficiency
52 Akhigbe and McNulty (2003) (USA) b Empirical Small banks are more profit efficient than large banks
(continued)
Focus
53 Ahmad (2006) (Pakistan) b Empirical Non-performing loans and other risk factors put a downward pressure
on banking efficiency
54 Isik and Darrat (2009) (Turkey) b Empirical Application of probit regression analysis
55 Siriopoulos and Tziogkidis (2010) (Greece) b Empirical Performance behavior of banking institutions within the scope of
change management theory
56 Havrylchyk (2006) (Poland) b Empirical Foreign banks not succeeded in enhancing their efficiency
57 Grigorian and Manole (2002) (Europe) b Empirical Foreign ownership with controlling power enhances efficiency
58 Zhao et al. (2006) (India) c Empirical Banks ownership structure impact banks efficiency but does not affect
TFP change
59 Ataullah and Le (2006) (India) c Empirical Competition and bank efficiency is positively associated while presence
of foreign bank negatively affects bank efficiency
60 Bhattacharyya et al. (1997) (India) c Empirical Publicly-owned Indian banks to have been the most efficient, followed
by foreign-owned banks
61 Zhao et al. (2010) (India) c Empirical Deregulation improves banks performance and fosters competition in
the lending market
62 Isik and Hassan (2003) (Turkey) c Empirical Significant productivity gains driven mostly by efficiency increases
rather than technical progress
63 Meesters et al. (2009) (41 countries) c Empirical Positive impact of financial liberalization policies on bank efficiency
64 Hsiao et al. (2010) (Taiwan) c Empirical Results remain unchanged even after controlling for the non-performing
loan ratio, capital adequacy ratio, bank ownership, size, and GDP
growth rate
65 Zenios et al. (1999) (Greece) d Empirical Application of DEA to assess bank branches
66 Camanho and Dyson (2005) (Portuguese) d Empirical Comparison of production and value added approach in bank branches
67 Camanho and Dyson (1999) (Portuguese) d Empirical Branches most productive scale size through the elimination of scale
inefficiencies
68 Jahanshahloo et al. (2004) (Iran) d Empirical Bank branch efficiency with shared input and output
69 Paradi et al. (2011) (Canada) d Empirical Bank branch efficiency in two stage evaluation
70 Deville (2009) (France) d Empirical Benchmarking of bank branches
71 Manandhar and Tang (2002) (Thailand) d Conceptual Conceptual framework to incorporate internal service quality with
efficiency
(continued)
productivity
Efficiency and
Table AI.
221
5,2
222
QRFM
Table AI.
Focus
72 Giokas (2008) (Greece) d Empirical Application of log linear frontier method to assess bank branch
efficiency
73 Kaur and Kaur (2010) (India) e Empirical Some extent merger is successful in Indian banking sector
74 Krishnasamy et al. (2003) (Malaysia) e Empirical Out of ten, eight merged banks improved their productivity after merger
75 Wezel (2010) (Central American region) e Empirical Efficiency of regional banks that were acquired by global banks
dropped during the acquisition year and recovered slightly thereafter
76 Fiordelisi and Molyneux (2010a) (Europe) f Empirical TFP changes best explain variations in shareholder value
77 Fiordelisi and Molyneux (2010b) (Europe) f Empirical Shareholder value is positively associated with CE
78 Fiordelisi and Molyneux (2007) (Europe) f Empirical Shareholder value is positively associated with cost and PE
79 Fiordelisi (2007) (Europe) f Empirical Shareholder value efficiency significantly explaining value creation
80 Majid et al. (2008) (China) f Empirical Significant relationship between efficiency and share prices
81 Beccalli et al. (2006) (Europe) f Empirical Stocks of cost efficient banks tend to outperform their inefficient
counterparts
82 Chu and Lim (1998) (Singapore) f Empirical Changes in the prices of the bank shares reflect changes in profit
efficiencies
83 Sufian et al. (2007) (Singapore) f Empirical Stocks of cost efficient banks to some extend outperform cost inefficient
banks
84 Barr (2004) (USA) g Conceptual Describes and critiques prominent DEA software packages, both
commercial and non-commercial
85 Cooper et al. (2004) (USA) g Conceptual Description of fundamental DEA models and their extensions
86 Sherman and Ladino (1995) (USA) g Descriptive Description of DEA application
87 Silva Portela et al. (2004) (UK) g Descriptive Development of a model to handle unrestricted data in a DEA
framework
88 Avkiran (2006) (Australia) g Descriptive Theoretical models of technical, cost and PE under production and
intermediation approach with key variables for foreign banks
89 Ray (2004) (USA) g Descriptive Concepts of DEA, MPI and their application
90 Button and Weyman-Jones (1994) (USA) g Conceptual Concept of X-efficiency and technical efficiency
91 Homburg (2001) (Germany) g Descriptive Application of DEA to benchmark DMUs
92 Doyle and Green (1994) (UK) g Conceptual Concept of efficiency and cross efficiency with its uses
93 Mukherjee et al. (2003) (India) g Descriptive Theoretical model for the linkage between resource, service quality and
performance for services
(continued)
Focus
94 Schlamp and Fecker (2002) (Switzerland) g Descriptive Application of DEA to benchmarking and management decision-
making
95 Halkos and Salamouris (2004) (Greece) g Descriptive Model offers an empirical reference set for comparing the inefficient
banks with the efficient ones
96 Avkiran (1999) (Australia) g Conceptual Strength and weaknesses of DEA
97 Berger and Humphrey (1997) (Cross h Exploratory DEA approach has massively used by the researchers to estimate the
country) cross efficiency of banking sectors of different countries
sectional
98 Ahmad Mokhtar et al. (2006) (Asia) h Exploratory DEA widely used to measure the technical efficiency while SFA to
cross measure the CE
sectional
99 Emrouznejad et al. (2008) (Cross country) h Exploratory Extensive listing of DEA research covering theoretical developments as
cross well as real-world applications from inception to the year 2007
sectional
100 Fethi and Pasiouras (2009) (Cross country) h Exploratory Survey of operational research and artificial intelligence techniques in
cross bank performance
sectional
101 Hatami-Marbini et al. (2011) (Cross h Exploratory Survey of fuzzy DEA literature
country) cross
sectional
102 Gattoufi et al. (2004) (USA) h Descriptive Scheme for classifying the DEA literature
103 Asmild et al. (2007) (UK) i Conceptual Concept of cone ratio DEA
104 Kao and Liu (2009) (Taiwan) i Empirical Stochastic-data approach produces more reliable and informative results
than the average-data and interval-data approaches do
105 Azadeh et al. (2011) (Iran) i Empirical Integration of AHP and DEA application in the banking industry
106 Tortosa-Ausina et al. (2008) (Spain) i Empirical Sensitivity analysis of DEA and MPI
Notes: a efficiency and productivity estimation; b empirical evidences on determinants of efficiency and productivity; c efficiency,
productivity: deregulation and reforms; d bank branch efficiency; e efficiency and mergers/acquisition; f efficiency and shareholder value,
market return; g efficiency and productivity; concepts and models; h literature survey; i future research areas
productivity
Efficiency and
Table AI.
223
QRFM About the authors
Dipasha Sharma is a research scholar in the Department of Management Studies, Indian Institute
5,2 of Technology Roorkee. She is pursuing her research in the area of finance and accounting.
Dipasha Sharma is the corresponding author and can be contacted at: dips2ddm@iitr.ernet.in
Dr Anil K. Sharma is an Associate Professor of Finance in the Department of Management
Studies, Indian Institute of Technology Roorkee. He is a first class post-graduate in commerce and a
gold medallist in MPhil. He has earned his PhD in the area of Finance and Accounting from Punjab
224 University, India. His teaching interests include management accounting, financial management,
working capital management, financial accounting, risk management and merchant banking. He has
published several research papers in refereed national and international journals of repute like
Emerald and Elsevier publishing groups and participated in many national and international
conferences. He is actively engaged in supervision of PhD scholars and MBA research projects.
Dr Mukesh K. Barua is an Assistant Professor of Operations Management in the Department
of Management Studies, Indian Institute of Technology Roorkee. He did BE in Industrial and
Production Engineering and pursued Masters in Mechanical Engineering and PhD on Supply
Chain Management from IIT Madras. His research area includes operations management, project
management, Six Sigma, and multivariate techniques. He has published several research papers
in national and intentional journals. He is actively engaged in supervision of PhD scholars and
MBA research projects.
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References: this document contains references to 126 other documents.

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2. Framework for efficiency and productivity

Year wise publications

Country No. of publications

18% Croos country publications of studies

depicts the popularity of frontier techniques in developing country research. Studies on

3. Literature on efficiency and productivity/development of conceptual

Focus No. of papers

(a) Efficiency and productivity estimation 20

We identified four categories of methodologies used by the researchers in existing

Methodology No. of papers

3.1 Conceptual model

Distribution of methodologies used in studies

Technical efficiency Allocative efficiency

Parametric Non Parametric

DFA SFA TFA FDH DEA

Input Oriented Output Oriented

Production approach Intermediation approach Value Added approach Operating approach

Efficiency scores and Productivity Change

Regulatory: Ownership, Time,

3.1.1 Efficiency measures. Any producing unit is said to be technically efficient

Efficiency measure No. of studies

constant optimal level of output in an industry then it is said to be a constant return to

Frontier approach No. of studies

Studies classified as Parametric and Non Parametric

Approach No. of studies

Approaches for Input/output selection

Ownership Dummy for public, private, and foreign ownership

Second stage regression techniques No. of studies

Second stage Regression techniques for determinants

variables whereas the number of transactions, number of ATMs and number of

is an emerging area. This linkage may provide a holistic picture of performance of

Working Paper No. 2850, June.

Leibenstein, H. (1966), Allocative efficiency versus X-efficiency, American Economic Review,

empirical evidence from Malaysia, Research in International Business and Finance,

(The Appendix follows overleaf.)

of 106 reviewed studies

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