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Innovation and efficiency in financial institutions

Sena, Vania; Kenjegaliev, Amangeldi; Kenjegalieva, Aliya

Authors

Vania Sena

Aliya Kenjegalieva



Abstract

This paper proposes a new methodology that combines standard production theory with Multiple-Criteria Decision Analysis (MCDA) methods to rank banks based on their capability of using investment in new technologies to reduce the other inputs’ usage, for a given level of output. Banks are first ranked based on their investment in innovation (innovation rank); afterwards, we calculate the overall rank by combining two factors of production, viz. labor and assets, using the PROMETHEE II approach that belongs to the family of the outranking methods. We then use directional efficiency measures to measure the banks’ efficiency by means of relation between two ranks, for a given level of the outputs. We apply the methodology to a sample of US and EU banks sourced from Orbis BankFocus. The key findings suggest there are four types of banks in our sample: (a) banks whose innovation rank is positively correlated with the overall rank; (b) banks exhibiting a negative correlation between two ranks: their overall ranks are low while still exhibiting high innovation ranks; (c) banks with high overall rank but low innovation rank and (d) banks with the worst ranks both for the innovation rank and the overall rank. The least efficient banks belong to this group.

Citation

Sena, V., Kenjegaliev, A., & Kenjegalieva, A. (2022). Innovation and efficiency in financial institutions. Frontiers in Research Metrics and Analytics, 7, Article 805116. https://doi.org/10.3389/frma.2022.805116

Journal Article Type Article
Acceptance Date Jul 18, 2022
Online Publication Date Aug 10, 2022
Publication Date Aug 10, 2022
Deposit Date Aug 10, 2022
Publicly Available Date Oct 27, 2022
Journal Frontiers in Research Metrics and Analytics
Print ISSN 2504-0537
Publisher Frontiers Media
Peer Reviewed Peer Reviewed
Volume 7
Article Number 805116
DOI https://doi.org/10.3389/frma.2022.805116
Keywords Efficiency; Distance function; Innovation; Ranks; MCDA
Public URL https://hull-repository.worktribe.com/output/4051187

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Publisher Licence URL
http://creativecommons.org/licenses/by/4.0

Copyright Statement
© 2022 Sena, Kenjegaliev and Kenjegalieva. This is an open-access
article distributed under the terms of the Creative Commons Attribution License (CC BY). The use, distribution or reproduction in other forums is permitted, provided the original author(s) and the copyright owner(s) are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.





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