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A cognitive analytics management framework to select input and output variables for data envelopment analysis modeling of performance efficiency of banks using random forest and entropy of information

Imad Bou-Hamad, Abdel Latef Anouze and Ibrahim H. Osman ()
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Imad Bou-Hamad: Olayan School of Business, American University of Beirut
Abdel Latef Anouze: Qatar University
Ibrahim H. Osman: Olayan School of Business, American University of Beirut

Annals of Operations Research, 2022, vol. 308, issue 1, No 4, 63-92

Abstract: Abstract The efficiency of banks has a critical role in development of sound financial systems of countries. Data Envelopment Analysis (DEA) has witnessed an increase in popularity for modeling the performance efficiency of banks. Such efficiency depends on the appropriate selection of input and output variables. In literature, no agreement exists on the selection of relevant variables. The disagreement has been an on-going debate among academic experts, and no diagnostic tools exist to identify variable misspecifications. A cognitive analytics management framework is proposed using three processes to address misspecifications. The cognitive process conducts an extensive review to identify the most common set of variables. The analytics process integrates a random forest method; a simulation method with a DEA measurement feedback; and Shannon Entropy to select the best DEA model and its relevant variables. Finally, a management process discusses the managerial insights to manage performance and impacts. A sample of data is collected on 303 top-world banks for the periods 2013 to 2015 from 49 countries. The experimental simulation results identified the best DEA model along with its associated variables, and addressed the misclassification of the total deposits. The paper concludes with the limitations and future research directions.

Keywords: Data envelopment analysis; Input/output variable selection; Performance efficiency of banks; Random forests; Shannon entropy of information (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s10479-021-04024-0

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