Inefficiency patterns in family-owned banks in Bangladesh

Abstract

PurposeMulti-directional efficiency analysis (MEA) is an alternative methodology to data envelopment analysis (DEA) that investigates the improvement potentials in each input and output dimension and identifies a benchmark proportional to these potential improvements. This results in a more nuanced picture of the sources of the inefficiency providing opportunities for additional conclusions about which variables the inefficiency is mainly located on. MEA provides insights into not only the level of the inefficiency but also the patterns within the inefficiency, i.e. its sources and location. This paper applies this methodology to Bangladeshi banks to understand the differences in the inefficiency patterns between different subgroups.Design/methodology/approachThis paper analyses the difference in the pattern of inefficiency between the older family-dominated banks and the newer non-family-owned banks in Bangladesh using the recently developed MEAs technology, which enables analysis of patterns within inefficiencies rather than only levels of (in)efficiency. The empirical results show that whilst there are few significant differences in the levels of variable-specific efficiency scores between the two subgroups, there are clearer differences on the inefficiency contributions from particular outputs in most of the study period and also on most variables in the time window of 2007–2009. This finding provides clues to differences in business models and management practice between the two types of banks in Bangladesh.FindingsThe empirical results show that whilst there are few significant differences in the levels of variable-specific efficiency scores between the two subgroups (older family-dominated banks and the newer non-family-owned banks), there are clearer differences on the inefficiency contributions from particular outputs in most of the study period and also on most variables in the time window of 2007–2009, during the Global Financial Crisis (GFCs). This finding provides clues to differences in business models and management practice between the two types of banks in Bangladesh.Practical implicationsDEA is a conventional tool for benchmarking in management science. However, conventional benchmarking exercises based on DEA do not reveal significant differences in the sources of inefficiency that show differences in business models. While DEA remains the most utilized technique in the efficiency literature, we think that a more flexible and deeper analysis requires something like MEA.Originality/valueThe contribution is twofold. First, examination of performances of family-owned firms is a well-established but analysis of performances of family-dominated banks is relative scarce. Secondly, isolating the sources of inefficiency which differs between types of banks even if there is no difference in inefficiency levels is absolutely new for a complete data set of conventional banks in Bangladesh. It turns out that there are few (significant) differences between the groups in terms of the inefficiency levels, whereas clear patterns emerge in terms of differences in inefficiency contributions between family-dominated and non-family-owned banks, during the Global Financial Crisis

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“…Recently, Asmild et al. concluded (Asmild et al , 2021) that differences in business models and management practices depend on the ownership of the bank, and thus affect the financial performance of the bank.…”

“…In a regional study of 19 countries in the Middle East and North Africa, Mateev and Bachvarov (2021) found that ownership concentration in collaboration with private monitoring has a strong effect on the profitability of banks. Recently, Asmild et al concluded (Asmild et al, 2021) that differences in business models and management practices depend on the ownership of the bank, and thus affect the financial performance of the bank.…”

Performance evaluation of commercial bank branches in dynamic competitive conditions: a network DEA model with serial and cross-shared resources

“…, 2013; Wanke et al. , 2019; Asmild et al. , 2021), the performance evaluation leads to the development and increase of the efficiency of DMUs when the results of this evaluation are applied in the next periods.…”

“…Our researches show that this concept has not been given much attention among the studies conducted in evaluating the performance of organizations. Although in some of the past studies, performance evaluation issues have been investigated in a dynamic and multiperiod conditions (Shafiee et al, 2013;Wanke et al, 2019;Asmild et al, 2021), the performance evaluation leads to the development and increase of the efficiency of DMUs when the results of this evaluation are applied in the next periods. The evaluation of the performance of DMUs should be examined from a macro perspective and with a systematic view, and the impact of the evaluation of their performance over the next periods should be considered in problem modeling.…”