Monitoring bank performance in the presence of risk

Mircea Epure and Esteban Lafuente

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: This paper proposes a managerial control tool that integrates risk in efficiency measures. Building on existing efficiency specifications, our proposal reflects the real banking technology and accurately models the relationship between desirable and undesirable outputs. Specifically, the undesirable output is defined as non-performing loans to capture credit risk, and is linked only to the relevant dimension of the output set. We empirically illustrate how our efficiency measure functions for managerial control purposes. The application considers a unique dataset of Costa Rican banks during 1998-2012. Results' implications are mostly discussed at bank-level, and their interpretations are enhanced by using accounting ratios. We also show the usefulness of our tool for corporate governance by examining performance changes around executive turnover. Our findings confirm that appointing CEOs from outside the bank is associated with significantly higher performance ex post executive turnover, thus suggesting the potential benefits of new organisational practices.

Keywords: efficiency; risk; accounting; CEO turnover; banking; non-performing loans (search for similar items in EconPapers)
JEL-codes: G21 G28 G3 M1 M2 (search for similar items in EconPapers)
Date: 2012-03, Revised 2014-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eff and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Monitoring bank performance in the presence of risk (2015)
Working Paper: Monitoring Bank Performance in the Presence of Risk (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1310

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