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A decision-oriented approach to performance measurement

Providing an insight into the DEA efficiency of banking institutions

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Minh Hanh Le

Within the performance measurement theme, this book contributes a new decision-oriented perspective to evaluate the efficiency of organizations. This perspective defines an efficient organization as the one which attains the rationality in the operating process to generate its desired values. From this angle, the book identifies the pitfalls regarding the input-output specification in bank efficiency assessments using Data Envelopment Analysis (DEA) models. It introduces the Decision-oriented Performance Measurement framework grounded in management rationality concepts as a solution to avoid these pitfalls. For empirical evidence, the book presents a goal-oriented DEA efficiency analysis of German savings bank sector.
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Chapter 5: DEA efficiency of German savings banks: Evidence from a goal-oriented perspective

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Abstract This chapter contributes one of very few DEA efficiency analyses of German savings banks to literature. With performance criteria derived in a novel approach as illustrated in Chapter 4, the DEA assessment is customized to capture their distinct goal set with the orientation toward stakeholder values rather than shareholder value. The data set covers the period from 2006 to 2011 for 396 banks which constitutes about 94% of total assets of the whole savings bank sector in Germany in 2011. Considering both the performance on actual goals and expected values of the banks, the empirical analysis addresses three specific questions: (i) To what extent do the banks respond to the values of their stakeholders, especially compared to the profit maximization assumption? (ii) How did the banks overcome the financial crisis 2008/09? (iii) What conclusion can be drawn from the relation between the size of the banks and their scale efficiency? The findings suggest that German savings banks are better at responding to key stakeholder expectations than generating profit for themselves. The results confirm the active role of German savings banks in contributing to the economic stability of the country when revealing that their performance to benefit the respective regional public was barely affected by the 2008/09 financial crisis. The German savings bank sector witnesses a dispersion in operating scales, and larger banks are more likely to experience decreasing returns to scale and have lower scale efficiency scores.

5.1 Introduction

This chapter provides...

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