2. Universidad Cardenal Herrera-CEU

The analysis of efficiency and productivity in banking has received a great deal of attention for almost three decades now. However, most of the existing literature to date has not explicitly accounted for risk when measuring efficiency. We propose an analysis of profit efficiency taking into account how the inclusion of a variety of bank risk measures might bias efficiency scores. Our measures of risk are partly inspired by the literature on earnings management and earnings quality, considering that loan loss provisions, as a generally accepted proxy for risk, can be adjusted to manage earnings and regulatory capital. We also consider some variants of traditional models of profit efficiency where different regimes are stipulated so that financial institutions can be evaluated in different dimensions—i.e. prices, quantities, or prices and quantities simultaneously. We perform this analysis on the Spanish banking industry, whose institutions are deeply affected by the current international financial crisis, and where re-regulation is taking place. Our results can be explored in multiple dimensions but, in general, they indicate that the impact of earnings management on profit efficiency is of less magnitude than what might, a priori, be expected, and that the performance of savings banks has been generally worse than that of commercial banks. However, savings banks are adapting to the new regulatory scenario and rapidly catching up with commercial banks, especially in some dimensions of performance.

The literature analysing the efficiency of financial institutions has evolved rapidly over the last 20 years. Most research has focused on the input side, analysing either cost, input technical efficiency or input allocative efficiency, whereas comparatively fewer studies have examined the revenue side. However, both sides are relevant when evaluating banks’ performance. This article explicitly explores how serious it may be to confine the analysis to one side of banks’ activities only, comparing the efficiencies yielded by either minimising costs or maximising revenues. We focus on the Spanish banking sector, which is currently undergoing a profound process of change and restructuring. The application shows how severely biased the analysis is when only a partial efficiency measurement is conducted. It also shows the growing relevance of the issue since the beginning of the financial crisis. © 2016 Asociación Española de Contabilidad y Administración de Empresas (AECA).

After the financial crisis of 2007–2008, some bank performance dimensions have been the subject of debate, two of which are bank efficiency, and bank risk-taking behavior. The literature on bank efficiency and productivity has grown considerably over the last three decades, and has gained momentum in the aftermath of the financial crisis. Interest in bank risk-taking behavior, usually focusing on its links to monetary policy, has been relatively low, but has also increased exponentially in more recent years. This paper combines these two streams of research. Specifically, we test whether more inefficient banks take greater risks when selecting borrowers, charging interests and requiring collateral, and whether these links between inefficiency and risk change according to the type of bank. Our analysis centers on the Spanish banking system, which has been severely affected by the burst of the housing bubble and has undergone substantial restructuring. To test our hypotheses, we created a database with information on banks and savings banks, their borrowers (non-financial firms), and the links between them. The study also contributes to the literature by considering a novel profit frontier approach. Our results suggest that more inefficient banks take greater risks in selecting their borrowers, and that this high-taking behavior is not offset by higher interest rates.