Stochastic efficiencies of network production systems with correlated stochastic data: the case of Taiwanese commercial banks

Chiang Kao, Shiang Tai Liu

Research output: Contribution to journalArticlepeer-review

Abstract

Although the business environment is stochastic, deterministic data envelopment analysis (DEA) models are typically used to measure the efficiency of commercial banks for the purpose of simplicity. Bank operations are characterized by a network structure due to the dual role of deposits, which, on the one hand, are the output of the process of borrowing funds from depositors and, on the other hand, are the input of the process of making loans. Since the outputs of the production process of the bank are correlated with its inputs, the model for measuring efficiency in this case is a stochastic program with correlated data. To take the correlation between the inputs and outputs into consideration, in this paper, a standard normal transformation is applied for the correlated data, and a network stochastic model is developed to obtain the distribution of the stochastic efficiency. The model is used to measure the efficiency of twenty-two commercial banks in Taiwan. The results are more reliable, discriminative, and informative than those obtained from the existing models. They also show that the performance of a bank is mainly affected by its loan performance. Different from the stereotype suggesting that private companies usually operate more efficiently than state-owned companies, public banks perform better than private banks in Taiwan.

Original languageEnglish
JournalAnnals of Operations Research
DOIs
Publication statusAccepted/In press - 2021

All Science Journal Classification (ASJC) codes

  • Decision Sciences(all)
  • Management Science and Operations Research

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