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Regulation adaptive strategy and bank efficiency: A network slacks-based measure with shared resources

Linlin Zhao, Qingyuan Zhu and Lin Zhang

European Journal of Operational Research, 2021, vol. 295, issue 1, 348-362

Abstract: Banks have two primary strategies for adapting to a regulation change in the era of big data which can be characterized as natural disposability and managerial disposability. Natural disposability implies a negative strategy by which a bank attempts to decreases its vector of inputs to decrease undesirable outputs. In contrast, managerial disposability indicates a positive strategy by which a bank considers a regulation change as an opportunity and adapt the regulation change by utilizing big data technology. The operational process of a bank can be decomposed into a productivity stage and a profitability stage. Furthermore, the operation costs, a shared resource, can be used to characterize natural disposability and managerial disposability. Based on natural disposability and managerial disposability, this paper proposes two network models to estimate the efficiencies of banks. To test their practical implications, the proposed models were applied to examine the efficiencies of Chinese commercial banks in the period 2014−2018. Our key findings are as follows. (1) There exist great disparities in the inefficiencies between two adaptive strategies. The inefficiencies are primarily driven by the profitability stage under natural disposability, whereas the inefficiencies are equally attributed to both stages under managerial disposability. (2) The efficiency differences among different types of banks are insignificant under natural disposability but are significant under managerial disposability. (3) Joint-stock commercial banks are more oveall efficient than state-owned commercial banks, city commercial banks and rural commercial banks, while state-owned commercial banks show worst practice for overall efficiency and profitability stage efficiency.

Keywords: Data envelopment analysis; Regulation adaptive strategy; Bank efficiency; Natural disposability; Managerial disposability (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:295:y:2021:i:1:p:348-362

DOI: 10.1016/j.ejor.2021.02.050

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