Title: Efficiency in banking: does the choice of inputs and outputs matter?

Authors: Christos Floros; Constantin Zopounidis; Yong Tan; Christos Lemonakis; Alexandros Garefalakis; Efthalia Tabouratzi

Addresses: Department of Accounting and Finance, Technological Educational Institute of Crete, Estavromenos, Heraklion, Crete, 71004, Greece ' School of Production Engineering and Management, Financial Engineering Laboratory, Technical University of Crete, University Campus, Chania 73100, Greece; Audencia Business School, Institute of Finance, 8 route de la Jonelière, Nantes 44312, France ' Department of Accountancy, Finance and Economics, Huddersfield Business School, University of Huddersfield Queensgate, Huddersfield, West Yorkshire HD1 3DH, UK ' Department of Business Administration, Technological Educational Institute of Crete, Agios Nikolaos, Crete, 72100, Greece ' Department of Accounting and Finance, Technological Educational Institute of Crete, Estavromenos, Heraklion, Crete, 71004, Greece ' Department of Accounting and Finance, Technological Educational Institute of Crete, Estavromenos, Heraklion, Crete, 71004, Greece

Abstract: This paper examines banking efficiency using recent data from PIGS countries (i.e., Portugal, Italy, Greece and Spain), which suffer from debt problems. We employ a two-stage approach based on the effect of several items of balance sheets on cash flows and data envelopment analysis (DEA). More specifically, we extend previous studies by giving attention to the deposit dilemma. The reported results show that the choice of inputs and outputs does matter in the case of European banking efficiency. Although the role of deposits is controversial, we find that deposits may be an output variable, owing to liquidity issues that play a major role in the efficiency of PIGS' banking sector. We also report that the DEA model with deposits as an output variable generates efficiency scores that fall between periods. These results are helpful to bank managers and financial analysts dealing with efficiency modelling.

Keywords: PIGS; banking sector; efficiency; deposits dilemma; two-stage approach; cash flows; DEA; data envelopment analysis; regression.

DOI: 10.1504/IJCEE.2020.107370

International Journal of Computational Economics and Econometrics, 2020 Vol.10 No.2, pp.129 - 148

Received: 09 Dec 2016
Accepted: 20 Nov 2017
Published online: 21 May 2020 *

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