Measuring the relative efficiency of Canadian versus US banks

Abstract

During the past three decades, data envelopment analysis (DEA) has been successfully used for measuring the relative efficiency of financial or non-financial firms. This paper presents an empirical investigation to measure the relative efficiency of five Canadian banks versus 6 US big banks using DEA method. The study considers the number of employees and total assets as input and net revenue is used as the output of the DEA model. The data are collected from the official statements of the banks for the fiscal year of 2017. The results indicate that 6 US banks maintained an average efficiency of 0.87 but the average efficiency of Canadian banks was 0.72. While two US banks maintained an efficiency of one, the other US banks demonstrate relatively well in terms of the performance. In Canada, while one bank performed relatively well, the performance of the other Canadian banks were not as good as the US banks.

Cost Efficiency Determinants: Evidence from the Canadian Banking Industry

“…The situation worsened in that the technical efficiency declined from 0.9240 in 2006 to 0.8911 in 2017 ( Figure 1). The technical inefficiency finding is consistent with Ghaeli (2019) and Xiang, Shamsuddin & Worthington (2015) portrayal of the industry. Given that cost efficiency is the product of allocative efficiency (AE) and technical efficiency (TE), the AE and TE findings imply that the industry's cost inefficiency is largely due to technical inefficiency.…”

“…In other studies (e.g., Belas, Kocisova, & Gavurova, 2019;Rahman, Ashraf, Zheng, & Begum, 2017), the examination involves variables from more than one category. Regarding studies on the Canadian banking industry, most focus on technical efficiency (e.g., Paradi, Min, & Yang, 2015;, and comparison with a handful of countries (e.g., Ghaeli, 2019;Xiang, Shamsuddin, & Worthington, 2015). In addition, a few (e.g., Asmild, Paradi, Aggarwall, & Schaffnit, 2004;Parsons, Gotlieb, & Denny, 1993) examined the industry's productivity.…”

Comparison of Bank Efficiencies between the US and Canada: Evidence Based on SFA and DEA

“…The highest efficiency is 0.8742 compared to 1 of other groups, which is surprising because this means there is not a single Canadian bank that is both located on the production frontier and minimizing costs. The DEA results are well in line with Ghaeli (2018), which concludes that US banks have higher cost efficiencies than Canadian counterparts. However, this study uses only DEA and thus, an extension of both the methodology and data in this paper question the validity of the conclusion that the US banks outperform Canadian banks.…”

“…Few researchers have devoted attention to the Canadian banking industry, which is not only structurally different from the US banking industry, but has also surprisingly experienced no major banking crises, making Canada the only nation to stand out in this regard. This is the first study to detect the efficiency differ-ence between these two countries using panel data and extensive methodologies, compared with Ghaeli (2018).…”

“…The difference in efficiency stems from individual difference rather than structural difference. As for the comparison between US and Canadian bank efficiency, the only one the author found is Ghaeli (2018) which uses DEA to examine a cross-sectional data consisting of six US banks and five Canadian banks in 2017 and concludes that Canadian banks are less efficient than the US banks.…”