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Endogenous bank risk and efficiency

Delis, Manthos, Iosifidi, Maria and Tsionas, E (2016) Endogenous bank risk and efficiency European Journal of Operational Research, 260 (1). pp. 376-387.

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Abstract

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.

Item Type: Article
Subjects : Surrey Business School
Divisions : Faculty of Arts and Social Sciences > Surrey Business School
Authors :
NameEmailORCID
Delis, Manthosm.delis@surrey.ac.ukUNSPECIFIED
Iosifidi, Mariam.iosifidi@surrey.ac.ukUNSPECIFIED
Tsionas, EUNSPECIFIEDUNSPECIFIED
Date : 19 December 2016
Identification Number : 10.1016/j.ejor.2016.12.024
Copyright Disclaimer : © 2016. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/
Uncontrolled Keywords : OR in banking; Stochastic frontier; Endogenous risk; Risk-efficiency relationship; Bayesian methods
Related URLs :
Depositing User : Symplectic Elements
Date Deposited : 14 Feb 2017 14:31
Last Modified : 07 Jul 2017 08:49
URI: http://epubs.surrey.ac.uk/id/eprint/813530

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