Journal of Productivity Analysis

, Volume 33, Issue 2, pp 109–123 | Cite as

Adjusting for cultural differences, a new DEA model applied to a merged bank

  • Joseph C. ParadiEmail author
  • Sandra A. Vela
  • Haiyan Zhu


The usefulness and application of Data Envelopment Analysis (DEA) efficiency measurements is usually limited by the requirement of consistent operating circumstances. However, in many real world situations this is not the case, so to overcome this problem, this paper reports on a new strategy by inventing a Culturally Adjusted DEA model to benchmark business units that operate under different cultural (business) environments. This is especially useful when these environmental factors are partial causes of inefficiency and can not be simply incorporated into a DEA model as inputs or outputs. A simulation analysis is conducted to examine the effectiveness of the CA-DEA model for controlling these environmental effects. This model is applied to a real life efficiency study of two major financial firms in Canada in 2000, when the two entities started to consolidate and merge their branch networks. Two cultural indices are identified to represent a firm’s unique operating environment, one to capture the nature of a firm’s corporate strategies (Corporate Index), and the other to estimate the effectiveness of a firm’s operational systems (Service Index). The results show that a firm’s corporate culture has a significant influence on its branches’ efficiency and this, we found, is often neglected in such studies. This paper also makes a contribution to the bank merger literature by providing an internal view of the potential benefits that may result from sharing cultural advantages while identifying the true managerial inefficiencies.


Data envelopment analysis Cultural environment Branch efficiency Bank merger Cross firm comparison Model comparison 

JEL Classification



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Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  • Joseph C. Paradi
    • 1
    Email author
  • Sandra A. Vela
    • 1
  • Haiyan Zhu
    • 1
  1. 1.Centre for Management of Technology and Entrepreneurship, Faculty of Applied Science and EngineeringUniversity of TorontoTorontoCanada

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