DEA application in banking: relationship between efficiency scores and bank size

Abstract

The paper aims to investigate the relationship between banks’ size and efficiency scores. The study applies Data Envelopment Analysis (DEA) as a tool for measuring bank relative efficiency. Sample includes European banks and the data for the analysis was extracted form BankScope data base. Intermediation approach to banking has taken as a conceptual basis for the choice of variables. Input-oriented DEA model under the assumption of variable returns to scale (VRS) was applied. Besides, the relationship between bank efficiency scores and traditional performance ratios was examined. The paper contributes to the existing literature, filling the gap in regard to bank efficiency measuring in new member states of the European Union.