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Determinants of Bank Performance in Transition Countries: A Data Envelopment Analysis

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We analyze what drives bank efficiency in the transition countries of Central Europe and compare the results with those for the United States. This paper is one of the few that use data envelopment analysis for the computation of efficiency scores in transition countries, and, to our knowledge, it is the first to explore systematically how different specifications of data envelopment analysis affect the results. Our findings corroborate the common wisdom that foreign-owned banks operating in transition countries are more efficient than domestic banks. While in the United States large banks are in general more efficient, the result for transition countries depends on the design of data envelopment analysis.

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Fig. 1


  1. 1.

    A DMU is relatively fully efficient or Farrell-efficient “on the basis of available evidence if and only if the performance of other DMUs does not show that some of its inputs or outputs can be improved without worsening some of its other inputs or outputs”, Cooper et al. (2004). The definition avoids reference to prices or assumptions on weights.

  2. 2.

    Note that the assumption of convexity is criticized for there is no reason for this assumption in real terms. That is why non-parametric approaches were enriched by so-called free disposal hull (FDH) method developed by Deprins et al. (1984)—in other words the DEA relaxed of the convexity assumption.

  3. 3.

    Koopmans (1951) definition of technical efficiency is stricter than that of Farrell (1957). The former states that a firm is only technically efficient if it operates on the frontier and furthermore that all associated slacks equal zero.

  4. 4.

    Allocative efficiency is therefore a radial measure of technical efficiency, a ratio of two measures of distance. Radial efficiency measures are unit-invariant, so that changing the units of measurement does not affect the score in value.


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We thank Oldrich Dedek, Petr Jakubik, Michal Mejstrik, and seminar participants at Charles University for helpful comments on previous versions of this manuscript. We gratefully acknowledge financial support from the Grant Agency of Charles University (grant #89910) and from the Grant Agency of the Czech Republic (grant P402/11/0948). Corresponding author: Zuzana Irsova, zuzana.irsova@ies-prague.org. The views expressed here are ours and not necessarily those of our institutions. All remaining errors are solely our responsibility.

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Correspondence to Zuzana Irsova.

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Havranek, T., Irsova, Z. Determinants of Bank Performance in Transition Countries: A Data Envelopment Analysis. Transit Stud Rev 20, 1–17 (2013). https://doi.org/10.1007/s11300-013-0270-x

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  • Banking
  • Efficiency analysis
  • Data envelopment analysis
  • Central and Eastern Europe
  • Transition countries

JEL Classification

  • C13
  • G21
  • L25