Efficiency dynamics of the Croatian banking industry: DEA investigation

Abstract

© 2019, © 2019 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group. The paper deals with the efficiency dynamics of the Croatian banking industry, covering the period from 2006 to 2015. We have implemented the intermediation approach, using interest and non-interest expenses and revenues as the input and output variables, respectively. The variable return to scale (BCC) Data Envelopment Analysis (DEA) output-oriented model has been implemented, and we have estimated the crisis-driven efficiency trends, as well as the impact of the EU membership. We further estimated the efficiency effects of the relative market power/size, ownership structure, and origin of capital. The global crisis had detrimental effects since the overall efficiency score dropped by about 3%. On the contrary, Croatian banks have largely benefited from the EU membership, and the efficiency score after the EU association increased by about 45%. The market leaders are more efficient than the competitive fringe, which is in line with the efficiency structure hypothesis. In addition, the biggest banks are the most efficient ones, meaning that the scale efficiency hypothesis has also been upheld. Contrary to the agency theory hypothesis, state-owned banks are permanently more efficient than private banks. Finally, the results support the home-field advantage hypothesis exclusively for the pre-crisis period (2006–2009).