Identifying bank failures with two-stage data envelopment analysis in the worst-case scenario: The case of Taiwan banks

Fuh-Hwa Liu*, Cheng Li Chen

*Corresponding author for this work

Research output: Contribution to journalArticle

3 Scopus citations

Abstract

In the banking industry, the production process can be described as a two-stage process. There are a number of published data envelopment analysis (DEA) papers that study the bank performance with two-stage model. However, none of them is applied to identify bank failure. In fact, only one of them deals with negative profit data. In the real world, failed banks or firms often produced negative profit for several years before they went into bankruptcy. To fit this situation this paper introduces a two-stage worst-practice frontier DEA (WPFDEA) model that can deal with negative profit data and effectively identify failed bank(s) in the worse-case scenario. This model is applied in an empirical study. The result is then compared with the result from a twostage best-practice frontier DEA model to show the adequacy of WPF-DEA model for identifying failed bank(s) in the worst-case scenario.

Original languageEnglish
Pages (from-to)93-102
Number of pages10
JournalWSEAS Transactions on Information Science and Applications
Volume9
Issue number3
StatePublished - 1 Mar 2012

Keywords

  • Bankruptcy
  • Data envelopment analysis
  • Two-stage
  • Worst-case scenario
  • Worst-practice frontier

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