An Eco-Inefficiency Dominance Probability Approach for Chinese Banking Operations Based on Data Envelopment Analysis

Abstract

Data envelopment analysis (DEA) has proven to be a powerful technique for assessing the relative performance of a set of homogeneous decision-making units (DMUs). A critical feature of conventional DEA approaches is that only one or several sets of optimal virtual weights (or multipliers) are used to aggregate the ratio performance efficiencies, and thus, the efficiency scores might be too extreme or even unrealistic. Alternatively, this paper aims at developing a new performance dominance probability approach and applying it to analyze the banking operations in China. Towards that purpose, we first propose an extended eco-inefficiency model based on the DEA methodology to address banking activities and their possible relative performances. Since the eco-inefficiency will be obtained using a set of optimal weights, we further build a performance dominance structure by considering all sets of feasible weights from a data-driven perspective. Then, we develop two pairwise eco-inefficiency dominance concepts and propose the inefficiency dominance probability model. Finally, we illustrate the eco-inefficiency dominance probability approach with 32 Chinese listed banks from 2014 to 2018 to demonstrate the usefulness and efficacy of the proposed method.