Paper #1310

Títol:

Monitoring bank performance in the presence of risk

Autors:

Mircea Epure i Esteban Lafuente

Data:

Març 2012

Resum:

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.

Paraules clau:

efficiency; risk; accounting; CEO turnover; banking; non-performing loans

Codis JEL:

G21, G28, G3, M1, M2

Àrea de Recerca:

Direcció d'Empesa i Estudis de les Organitzacions / Finances i Comptabilitat

Publicat a:

Forthcoming in Journal of Productivity Analysis

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