Bank production with nonperforming loans: A minimum distance directional slack inefficiency approach

Hirofumi Fukuyama (), Roman Matousek and Nickolaos G. Tzeremes

Omega, 2022, vol. 113, issue C

Abstract: The study examines a bank production process with nonperforming loans in Japanese banking. Banks’ production process is measured by utilizing a minimum distance directional slack inefficiency model and by treating nonperforming loans through using the costly disposability property. Japanese banks’ performance levels are evaluated over the period 2013–2019. The estimated banks’ minimum distance directional slack inefficiency measure is further decomposed into labor, physical capital, loan, investment and strategic (decision) inefficiency. Empirical findings indicate substantial inefficiencies in Japanese banking that are mainly attributed to the hard-to-achieve targets set by the standard directional slack inefficiency model which is based on Koopmans’ notion of strong efficiency. The proposed minimum distance directional slack inefficiency estimator provides bank managers with practical targets, by evaluating banks at the closest point on the strongly efficient frontier. Finally, the empirical evidence suggests that the key factors behind Japanese banks’ performance are high investment and strategic (decision) efficiency levels.

Keywords: Data envelopment analysis; Nonperforming loans; Minimum distance; Slack inefficiency; Japanese banking (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S030504832200113X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jomega:v:113:y:2022:i:c:s030504832200113x

Ordering information: This journal article can be ordered from
http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
https://shop.elsevie ... _01_ooc_1&version=01

DOI: 10.1016/j.omega.2022.102706

Access Statistics for this article

Omega is currently edited by B. Lev

More articles in Omega from Elsevier
Bibliographic data for series maintained by Catherine Liu ().