Measuring the true managerial efficiency of bank branches in Taiwan: A three-stage DEA analysis

This paper aims to explore the true managerial efficiencies of the branches of a case bank in Taiwan. With 123 branches of the case bank comprising the sample, the study finds that, after the adjustment of environmental factors and statistical noise, managerial efficiency values from a three-stage data envelopment analysis (DEA) varies significantly from the traditional DEA model. This finding suggests that environmental variables have significant effect on branch efficiency. Moreover, scale inefficiency is the major cause of operating inefficiency in the case bank, and most branches are operating at the stage of increasing return to scale. With regards the branches’ business scope, those that operate loan and wealth management services have better managerial efficiency than those that focus on wealth management only. In terms of deposit amount, branches with a higher deposit amount generate better managerial efficiency. Finally, the results for regional location show no significant effect on branches’ managerial efficiency in Taiwan.

► We apply the third-stage DEA to measure the managerial efficiency of bank branches.
► The environmental factors have significant effect on bank branch efficiency.
► The major cause of the operating inefficiency of bank branches is scale inefficiency.
► Branches that operate loan and wealth management services generate better efficiency.
► Branches with a higher deposit amount generate better managerial efficiency.