Evaluating the profitability and marketability efficiency of large banks - An application of data envelopment analysis

Banking efficiency literature mostly addressed profitability efficiency (activities generating more profits for a bank), ignoring marketability efficiency (activities generating more market value). Applying a nonparametric frontier method-data envelopment analysis (DEA)-with a sample of 245 large banks, this study provides evidence that current large banks acquire relatively lower level of marketability efficiency. There are 34 (about 14%) banks that obtain higher level of profitability performance but lower level of marketability performance. Results also indicate that the geographical location of banks seems not related to either the profitability or marketability efficiency. Finally, overall technical efficiency (OTE) of the profitability performance can predict the likelihood of bank failures. (C) 2003 Elsevier Science Inc. All rights reserved.