Bank Productivity and Performance Groups: A Decomposition Approach Based Upon the Luenberger Productivity Indicator

European Journal of Operational Research 211(3), 630–641 (2011)

30 Pages Posted: 19 Sep 2014 Last revised: 20 Sep 2014

See all articles by Mircea Epure

Mircea Epure

Universitat Pompeu Fabra - Department of Economics and Business; Barcelona Graduate School of Economics (Barcelona GSE)

Kristiaan Kerstens

CNRS-LEM (UMR 9221); Catholic University of Lille - IESEG School of Management

Diego Prior

Autonomous University of Barcelona

Date Written: June 1, 2011

Abstract

The purpose of this paper is twofold. First, in the framework of the strategic groups’ literature, it analyzes changes in productivity and efficiency of Spanish private and savings banks over an eight-year period (1998-2006). Second, by adapting the decomposition of the Malmquist productivity indices suggested by Färe et al. (1994), it proposes similar components decomposing the Luenberger productivity indicator. Initially, productivity is decomposed into technological and efficiency changes. Thereafter, this efficiency change is decomposed into pure efficiency, scale and congestion changes. Empirical results demonstrate that productivity improvements are partially due to technological innovation. Furthermore, it is shown how the competition between private and savings banks develops in terms of the analyzed productivity and efficiency components. While private banks enjoy better efficiency change, savings banks contribute more to technological progress. Consequently, the Luenberger components are used as cluster analysis inputs. Thus, economic interpretations of the resulting performance groups are made via key differences in productivity components. Finally, following the strategic groups’ literature, supplementary insights are gained by linking these performance groups with banking ratios.

Keywords: Luenberger decomposition, Productivity, Efficiency, Spanish banking sector, Performance groups, Banking ratios

Suggested Citation

Epure, Mircea and Kerstens, Kristiaan and Prior, Diego, Bank Productivity and Performance Groups: A Decomposition Approach Based Upon the Luenberger Productivity Indicator (June 1, 2011). European Journal of Operational Research 211(3), 630–641 (2011). Available at SSRN: https://ssrn.com/abstract=2497939

Mircea Epure (Contact Author)

Universitat Pompeu Fabra - Department of Economics and Business ( email )

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

HOME PAGE: http://mirceaepure.com

Barcelona Graduate School of Economics (Barcelona GSE)

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Kristiaan Kerstens

CNRS-LEM (UMR 9221) ( email )

60 Boulevard Vauban
BP 109
Lille Cedex, 59016
France

Catholic University of Lille - IESEG School of Management ( email )

3 Rue de la Digue
Lille, 59000
France

Diego Prior

Autonomous University of Barcelona ( email )

Plaça Cívica
Cerdañola del Valles
Barcelona, Barcelona 08193
Spain

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