Open AccessThe Impact of Bank-Specific Factors on the Efficiency of Pakistan's Commercial Banks: Data Envelopment Analysis and Tobit Regression Model Framework
Author(s) -
Farhat Ullah Khan,
Aman U. Khan,
Inayat Ullah
Publication year - 2019
Publication title -
global regional review
Language(s) - English
Resource type - Journals
eISSN - 2663-7030
pISSN - 2616-955X
DOI - 10.31703/grr.2019(iv-iv).55
Subject(s) - tobit model , data envelopment analysis , inefficiency , profitability index , econometrics , market liquidity , asset quality , regression analysis , scale (ratio) , asset (computer security) , economics , returns to scale , business , capital adequacy ratio , statistics , monetary economics , computer science , mathematics , finance , microeconomics , production (economics) , incentive , physics , computer security , quantum mechanics
This study aims to measure the effects of bank-specific factors on the efficiency of Pakistan's twenty-seven (27) commercial banks. Efficiency was computed by input-oriented data envelopment analysis approach under CRS (constant return to scale) and VRS (variable return to scale) assumptions. The results revealed that overall inefficiency in commercial banks was to tune of 10 percent and was caused by both managerial incompetence and uneconomical bank's size. However, the uneconomic scale size remained the dominant source of inefficiency at individual banks level, and most of the banks exhibited a decreasing return to scale (DRS) behaviour. Furthermore, efficiency scores were regressed by bank-specific factors using the Tobit regression model. Among the bank-specific factors, Profitability, liquidity, bank size had a significant and positive impact, while market share and Asset quality had a negative and substantial effect on all the efficiency parameters.