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Effects of Risk Parameters (Credit, Operational, Liquidity and Market Risk) on Banking System Efficiency (Studying 15 Top Banks in Iran)

Ebrahim Hoseininassab, Kazem Yavari, Nader Mehregan and Reza Khoshsima
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Ebrahim Hoseininassab: Associate Professor, University of Tarbiat Modares, Department of Economics, Tehran, Iran
Kazem Yavari: Associate Professor, University of Tarbiat Modares, Department of Economics, Tehran, Iran
Nader Mehregan: Associate Professor, University of Hamedan, Department of Economics, Hamedan, Iran
Reza Khoshsima: Ph.D. Student in Economics, University of Tarbiat Modares , Tehran, Iran, (Corresponding Author)

Iranian Economic Review (IER), 2013, vol. 18, issue 1, 1-24

Abstract: This research, recognizing the importance of efficiency and risk as two fundamental important categories in banking industry, seeks to review the effectiveness of two popular models: parametric (SFA) method with economic basis and nonparametric (MEA) method with mathematical optimization basis to evaluate bank efficiency and rank and select an optimal model and also to identify the impact of credit, operational, market and liquidity risks on banking system efficiency. In this regard 15 banks were selected as statistical research community over the last six years (2005-2011). Using average performance provided by the above two methods, banks were ranked with Deap and Frontier software, and then to examine the presence or absence of significant correlation between the rankings provided by these two methods, the Pearson correlation coefficient was used. The results suggest differences in the two methods with regard to performance evaluation and ranking of banks, and show a relative superiority of SFA method, compared to MEA method. In addition, to examine the impact of efficiency on risk, for the four studied risks based on selected indicators, four models were estimated using econometric methods and the ordinary least squares (OLS). The results showed that each of the studied risks and their related indicator and their specific coefficient, significantly affect on efficiency.

Keywords: Efficiency; Risk; Risk and Efficiency Correlation; MEA Multi-Way Analysis; SFA Stochastic Frontier Analysis. (search for similar items in EconPapers)
Date: 2013
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