Rights statement: This is the author’s version of a work that was accepted for publication in European Journal of Operational Research. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in European Journal of Operational Research, 260, 1, 2017 DOI: 10.1016/j.ejor.2016.12.024
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Final published version
Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
}
TY - JOUR
T1 - Endogenous bank risk and efficiency
AU - Delis, Manthos D.
AU - Iosifidi, Maria
AU - Tsionas, Efthymios
N1 - This is the author’s version of a work that was accepted for publication in European Journal of Operational Research. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in European Journal of Operational Research, 260, 1, 2017 DOI: 10.1016/j.ejor.2016.12.024
PY - 2017/7/1
Y1 - 2017/7/1
N2 - We develop a framework to incorporate bank risk, as measured from the variance of profits or returns, within a model of frontier efficiency. Our framework follows the premise that risk is endogenously related to efficiency. We estimate our model using panel data for U.S. banks and Bayesian techniques. We show that excluding risk from the efficiency model significantly biases the efficiency estimates and the ranking of banks according to their competitive advantage. We also demonstrate that there is a negative risk-efficiency nexus with causality running both ways, while our estimates of risk are fully consistent with the developments in the banking industry over the period 1976-2014.
AB - We develop a framework to incorporate bank risk, as measured from the variance of profits or returns, within a model of frontier efficiency. Our framework follows the premise that risk is endogenously related to efficiency. We estimate our model using panel data for U.S. banks and Bayesian techniques. We show that excluding risk from the efficiency model significantly biases the efficiency estimates and the ranking of banks according to their competitive advantage. We also demonstrate that there is a negative risk-efficiency nexus with causality running both ways, while our estimates of risk are fully consistent with the developments in the banking industry over the period 1976-2014.
KW - OR in banking
KW - Stochastic frontier
KW - Endogenous risk
KW - Risk-efficiency relationship
KW - Bayesian methods
U2 - 10.1016/j.ejor.2016.12.024
DO - 10.1016/j.ejor.2016.12.024
M3 - Journal article
VL - 260
SP - 376
EP - 387
JO - European Journal of Operational Research
JF - European Journal of Operational Research
SN - 0377-2217
IS - 1
ER -