Evaluating the resource management and profitability efficiencies of US commercial banks from a dynamic network perspective
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Date
2024-12
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Springer Science and Business Media Deutschland GmbH
Abstract
The central concept of strategic benchmarking is resource management efficiency, which ultimately results in profitability. However, little is known about performance measurement from resource-based perspectives. This study uses the data envelopment analysis (DEA) model with a dynamic network structure to measure the resource management and profitability efficiencies of 287 US commercial banks from 2010 to 2020. Furthermore, we provide frontier projections and incorporate five variables, namely capital adequacy, asset quality, management quality, earning ability, and liquidity (i.e., the CAMEL ratings). The results revealed that the room for improvement in bank performance is 55.4%. In addition, we found that the CAMEL ratings of efficient banks are generally higher than those of inefficient banks, and management quality, earnings quality, and liquidity ratios positively contribute to bank performance. Moreover, big banks are generally more efficient than small banks. Overall, this study continues the current heated debate on performance measurement in the banking industry, with a particular focus on the DEA application to answer the fundamental question of why resource management efficiency reflects benchmark firms and provides insights into how efficient management of CAMEL ratings would help in improving their performance. © 2024, The Author(s).
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Keywords
CAMEL ratings, Dynamic network data envelopment analysis, Performance evaluation, Profitability efficiency, Resource management efficiency
Citation
Kweh, Q. L., Lu, W., Tone, K., & Liu, H. (2024). Evaluating the resource management and profitability efficiencies of US commercial banks from a dynamic network perspective. Financial Innovation, 10(1), 1-20. https://doi.org/10.1186/s40854-023-00531-0