Journal of Productivity Analysis

, Volume 44, Issue 3, pp 265–281 | Cite as

Monitoring bank performance in the presence of risk

Article

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 

JEL Classification

G21 G28 G3 M1 M2 

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Copyright information

© Springer Science+Business Media New York 2014

Authors and Affiliations

  1. 1.Department of Economics and BusinessUniversitat Pompeu Fabra, Barcelona GSE and Barcelona School of ManagementBarcelonaSpain
  2. 2.Department of ManagementUniversitat Politècnica de Catalunya (Barcelona Tech), EPSEBBarcelonaSpain

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