A Network DEA Model with Super Efficiency and Undesirable Outputs : An Application to Bank Efficiency in China

Abstract EN

There are two typical subprocesses in bank production—deposit generation and loan generation.

Aiming to open the black box of input-output production of banks and provide comprehensive and accurate assessment on the efficiency of each stage, this paper proposes a two-stage network model with bad outputs and supper efficiency (US-NSBM).

Empirical comparisons show that the US-NSBM may be promising and practical for taking the nonperforming loans into account and being able to rank all samples.

Applying it to measure the efficiency of Chinese commercial banks from 2008 to 2012, this paper explores the characteristics of overall and divisional efficiency, as well as the determinants of them.

Some interesting results are discovered.

The polarization of efficiency occurs in the bank level and deposit generation, yet does not in the loan generation.

Five hypotheses work as expected in the bank level, but not all of them are supported in the stage level.

Our results extend and complement some earlier empirical publications in the bank level.