2021
DOI: 10.1108/ijoem-06-2020-0665
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Recognizing nonmonotonicity of exogenous determinants in a stochastic profit efficiency framework: have banks overinvested in IT capital?

Abstract: PurposeThe purpose of this study is to explore and evaluate potential nonmonotonicity in the determinants of profit efficiency, specifically IT and R&D investments in the Indian commercial banking sector.Design/methodology/approachThe study employs an alternative stochastic profit efficiency framework and introduces nonmonotonic effects by parameterizing the location and scale parameters of the inefficiency component on an unbalanced panel data set of 72 commercial banks in the 2008–2019 period. Marginal e… Show more

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Cited by 5 publications
(11 citation statements)
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“…First, unlike stochastic frontier analysis (SFA), DEA does not require specification of a functional form. Second, SFA is known to overestimate efficiency scores by attributing a significant part of deviations to idiosyncratic shocks, causing clustering of efficiency observations near the best-practice frontier (Prakash et al , 2021).…”
Section: Methodsmentioning
confidence: 99%
“…First, unlike stochastic frontier analysis (SFA), DEA does not require specification of a functional form. Second, SFA is known to overestimate efficiency scores by attributing a significant part of deviations to idiosyncratic shocks, causing clustering of efficiency observations near the best-practice frontier (Prakash et al , 2021).…”
Section: Methodsmentioning
confidence: 99%
“…The findings establish an inverse link between bank diversification and profit inefficiency. The result is corroborated by Prakash et al (2022) but contradicts Moussawi and Mansour (2022). The profitable and non-risky nature of these activities compared to revenue from traditional activities might explain this link.…”
Section: Competitionefficiency In Commercial Bankingmentioning
confidence: 89%
“…Hence, some of the lower profit efficiency may be attributable to variations in operations, such as foreign banks' cautious portfolios. Interestingly, Prakash et al (2022) conclude that a higher CRAR increases profit inefficiency for foreign banks in India. Furthermore, activities such as promoting low-cost retail loans to capture retail markets and providing free remittance services to high-end consumers may have harmed their profit efficiency.…”
Section: Competitionefficiency In Commercial Bankingmentioning
confidence: 92%
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“…These institutional differences lie in India’s weak legal institutions, inefficient bankruptcy process, inadequate accounting and governance practices, poor external monitoring and a significant state-ownership of banks, among others (Jha et al , 2015). Third, the banking sector, which holds a prominent position in India's financial system, has experienced a wide array of reforms over the past decade, following which the competitive conditions have undergone dramatic changes (Prakash et al , 2021b). While the deregulation and liberalization reforms [2] aimed at introducing competition in the Indian banking sector, the postliberalization period has witnessed various mergers and the softening of restrictions on the banks’ activities (Rakshit and Bardhan, 2019).…”
Section: Introductionmentioning
confidence: 99%