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http://hdl.handle.net/10419/27878
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| Title: | | Efficiency and profitability of European banks: how important is operational efficiency?  |
| Authors: | | Werner, Karl Moormann, Jürgen |
| Issue Date: | | 2009 |
| Series/Report no.: | | Working paper series // Frankfurt School of Finance & Management 111 |
| Abstract: | | Most previous research on efficiency in banking takes a regulatory perspective. In contrast, this paper investigates the empirical relation between efficiency and profitability in five large economies of the European Union during the period 1998-2005 and discusses the results from the perspective of corporate bank strategy. Methodologically the existing literature is expanded by the use of DEA super-efficiency values to regress profitability, the incorporation of risk by calculative costs of capital, and a model specification built on the modern understanding of banks as centers of value creation. The results of the conducted static and dynamic regression analyses show that profitable banks operate with higher technical efficiency than their competitors. Furthermore, the strategic environment and in this regard the structure and concentration of the national financial sector have a considerable impact on a bank's financial performance. Both issues proved to be statistically and economically significant. Thus, the results support the appropriateness of the generic strategy of cost leadership for the European banking market. Banks following this strategic position were able to achieve higher excess returns during the analyzed period. |
| Subjects: | | Banks corporate strategy efficiency operational efficiency profitability |
| JEL: | | C14 G21 L25 M21 |
| Persistent Identifier of the first edition: | | urn:nbn:de:101:1-200907213372 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Frankfurt School - Working Paper Series, Frankfurt School of Finance and Management
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