An Application Of Data Envelopment Analysis To Benchmark CEO Remuneration: A South African Study

The purpose of the study is twofold; firstly, to use data envelopment analysis (DEA) to estimate the technical efficiencies of Johannesburg Stock Exchange (JSE)-listed companies (per industry) to convert the multiple components of CEO remuneration into multiple company determinants, namely size and performance indicators, and secondly, to develop an efficiency frontier to serve as a benchmark to suggest acceptable CEO remuneration levels. An empirical study was executed on a sample of 221 JSE-listed companies. Cross-sectional data of CEO remuneration and company determinants were obtained from the McGregor BFA database for the 2010 financial year. The study found that CEOs from 80 of the 221 companies included in the sample emerged as the benchmark CEOs and formed the efficiency frontier against which inefficient CEOs were compared. The practical value is that remuneration committees can use this model, which is based on best practices, to simplify the structuring of reasonable CEO remuneration packages

Chief executive pay in UK higher education: the role of university performance

open accessRemuneration for chief executives in UK higher education—known as Vice Chancellors (VCs)—has been on an upward trend in recent years, and VCs have received criticism that their performance does not warrant such reward. We investigate the relationship between VC pay and performance (rooted in principal agent theory), taking into account an array of other possible determinants. Deriving measures of VC performance is difficult as VCs are agents for various principals, and each principal may be interested in a different aspect of performance. We consider three measures of VC performance here: managerial efficiency as measured by data envelopment analysis; performance in university rankings produced by the media; the financial stability of the university. We construct a comprehensive data set, covering academic years 2009/2010 to 2016/2017, a period of considerable change in the UK higher education sector including rapidly-rising undergraduate tuition fees. Our results show that, once other possible determinants of VC pay are taken into account, the main measure of performance which affects VC pay is the one based on media rankings. Thus the agents (VCs) appear to be rewarded for delivering against this performance benchmark which is likely to be of interest to a variety of principals. This result however varies by type of university suggesting that the labour market for VCs differs by mission group

Benchmarking Of Johannesburg Stock Exchange CEO Compensation

The purpose of the study is to empirically compare CEO compensation benchmarks set by the frequently used Linear Regression Analysis (LRA), which is based on “averages” and Data Envelopment Analysis (DEA), which is based on “best practices”. To fulfill this purpose, an empirical investigation on South African listed companies was executed using a sample of 187 Johannesburg Stock Exchange (JSE) companies, grouped into three categories according to their sizes by using total assets, i.e. large, medium and small companies. For the LRA model, total CEO compensation is the dependent variable (y) with return on equity (as a measurement of performance) and total assets (as measurement of company size) as the independent variables (x). In the LRA model, the expected CEO compensation was calculated as a benchmark for each company and then compared to the actual value of the CEO compensation. In the DEA model, total CEO compensation is the input variable and return on equity and total assets the two output variables. The input-orientated technical efficiency estimate was calculated and the input targets (benchmarks for CEO compensation) set by the DEA model were compared to the actual CEO compensation. The study found that, using the LRA model, CEOs are on average actually underpaid in monetary terms by 36.8%, 33.2% and 17.8% for the large, medium and small companies, respectively. In contrast, the results for these three groups using DEA have shown that CEOs are on average actually overpaid in monetary terms by 47.6% 55.3% and 49.9%. This implies that LRA favors CEOs in comparison with the DEA model. Therefore, the study concludes that the frequently used LRA model is probably a reason that contributes to excessive CEO compensation

Benchmarking Of Johannesburg Stock Exchange CEO Compensation

The purpose of the study is to empirically compare CEO compensation benchmarks set by the frequently used Linear Regression Analysis (LRA), which is based on “averages” and Data Envelopment Analysis (DEA), which is based on “best practices”. To fulfill this purpose, an empirical investigation on South African listed companies was executed using a sample of 187 Johannesburg Stock Exchange (JSE) companies, grouped into three categories according to their sizes by using total assets, i.e. large, medium and small companies. For the LRA model, total CEO compensation is the dependent variable (y) with return on equity (as a measurement of performance) and total assets (as measurement of company size) as the independent variables (x). In the LRA model, the expected CEO compensation was calculated as a benchmark for each company and then compared to the actual value of the CEO compensation. In the DEA model, total CEO compensation is the input variable and return on equity and total assets the two output variables. The input-orientated technical efficiency estimate was calculated and the input targets (benchmarks for CEO compensation) set by the DEA model were compared to the actual CEO compensation. The study found that, using the LRA model, CEOs are on average actually underpaid in monetary terms by 36.8%, 33.2% and 17.8% for the large, medium and small companies, respectively. In contrast, the results for these three groups using DEA have shown that CEOs are on average actually overpaid in monetary terms by 47.6% 55.3% and 49.9%. This implies that LRA favors CEOs in comparison with the DEA model. Therefore, the study concludes that the frequently used LRA model is probably a reason that contributes to excessive CEO compensation

The impact of competition and internal corporate governance mechanism on bank performance: the case of North American and European countries

This thesis examined the effect of antitrust law and bank concentration on European and North American bank performance and managerial slack. This study empirically investigated the interrelated issues of antitrust policy, competition, and corporate governance and showed their significant roles in maximising shareholder wealth. Our analysis also examined the impact of concentration, antitrust law, internal corporate governance, and bank-specific and macro-economic factors on European and North American banking industry performance. With attention to E.U. commercial banks (1998-2014), European savings banks (2001-2014), European cooperative banks (2005-2014), United States commercial banks, Canada commercial banks, and European/North-American listed commercial banks (Part A – Data analysis with no governance variable [1995-2018]; Part B – Data with governance variables [2006-2018]). The higher level of property and agricultural loans, loan loss allowance, loan charges off, and non-performing loans to total asset ratio contributed to United States commercial bank failures (Alali and Romero, 2012). Also, in years leading to the 2007-09 financial crisis, banks failed to comply with the minimum capital requirements for risk-weighted capital ratio, and many banks held an excessive level of capital on the balance sheet above the minimum regulatory threshold (Lindquist, 2004; Jokipii and Milne, 2008; Ayuso et al., 2004). The holding of excessive capital buffer signified managerial risk aversion, under-investment, and reduced bank competitiveness. This study investigated how antitrust policy helped increase bank competitiveness and profitability in the European Union and North America. Our study found evidence that antitrust policies increased bank profitability and minimised managerial slack. In addition, many studies showed that the management ownership structure aligned the managers' interests with that of the shareholders (Saunders et al., 1990; Gorton and Rosen, 1995; Houston and James, 1995). Our study explored new empirical evidence for the nineteen European listed and unlisted banks with different bank specialisations. Bank profitability is proxied by return-on-average-equity, return-on-equity, and equity returns, which are the dependent variables in this study. The explanatory variables considered are bank-specific, macro-economic, internal corporate governance proxies, age, bank concentration, antitrust law, and financial crisis dummy variables. We utilised different panel data estimators (such as pooled ordinary least, between estimator, population average, fixed effects, first differences, and random effects estimators) and other estimation techniques (probit/logit regression, principal-component-analysis, difference-in-difference (DID) estimation, and instrumental variable regression) to examine the causal effect of bank longevity, antitrust policy, bank concentration, internal corporate governance, bank-specific factors, macro-economic factors and dummies of year, country and specialisation on bank profitability. The difference-in-difference estimation assists in exploring the effects of concentration (HHI) interaction with antitrust policy and governance measures on bank performance. We also examined the effects of other explanatory variables and interactions on managerial slack. Our fixed effect analysis showed that liquidity ratio, cost-income ratio, net-loan-to-total-asset, non-earning-assets-to-total-asset, asset utilisation, income diversification (BAAM), inflation, and credit risk had significant beneficial effects on cooperative bank performance. However, certain interactions (mHHIxAge, lHHIxAge), bank-specific (age, total-earning-asset-to-total-asset, capital-fund-liabilities, burden-total-asset) and macro-economic factors (GDP per capita) have significant and negative effects on EU co-operative banks performance. The bank-specific, exogenous factors (anti-trust-policy), and macro-economic factors that positively influence savings banks' performance are, for ROAE, Age-HHI-interactions, antitrust-policy, and total assets. On the other hand, the following explanatory factors negatively influenced E.U. saving bank performance, GDP per capita, credit risk, market share, net-loan-to-total-asset (NLTA), and cost-income ratio. The following bank-specific and exogenous factors improved European commercial bank performance. For ROAE, we confirmed antitrust-policy, capital-funding-liabilities (CFL), burden-total-asset, asset utilisation, income diversification (BAAM). The capital strength, cost-income ratio, and financial crisis adversely influenced European commercial bank performance. The United States commercial banks shared a similar beneficial influence of antitrust policy and CFL on profitability. Our random effect analysis showed that liquidity ratio, CFL, NEATA, and asset utilisation influenced Canada's commercial bank beneficially. On the other hand, average bank concentration, capital strength, cost-income ratio, and credit risk hampered Canadian commercial bank performance. According to the managerial slack (QLTTTA) findings, our random-effects modelling of European cooperative banks showed age, average concentration, high-concentration-age interaction, CFL, overheads, total assets, market share, GDP per capita, and financial crisis reduced managerial slack significantly. On the other hand, high-HHI, liquidity ratio, cost-income, NLTA, BURDENTA, TEATA, NEATA, asset utilisation (AU), BAAM, inflation, and credit risk significantly increased cooperative bank managerial slack. Our fixed effect analysis of United States commercial banks showed that antitrust policy, ETA, inflation, government debt significantly reduced managerial slack. The effect of age and total assets on QLTTTA is similar to our European cooperative bank findings. The adverse effects of our control variables on managerial slack follow the same pattern as European cooperative banks in some respect. For listed commercial banks, our fixed effect modelling showed that the loan-loss-reserve, capital expenditure, and the interaction of low HHI with structural changes in antitrust policy significantly minimised the likelihood of negative return-on-equity. The marginal effect analysis also confirmed that the structural change in antitrust policy at low bank concentration minimised the possibility of negative ROE empirically and graphically. The DID analysis also confirmed that the interaction of high HHI with the structural change in antitrust policy and dividend-per-share significantly increased listed bank ROE. The probit/logit analysis showed that earnings-per-share, board-specific skills, and the interaction of high-HHI with the independent board members significantly reduce the likelihood of negative returns. As the non-executive total compensation increased, the marginal effects of independent board members on the probability of negative returns increased. Our thesis implied that the non-executive board members must be optimally incentivised to ensure effective oversight. This thesis contributed to previous bodies of empirical studies on bank efficiency and profitability in four ways. Firstly, we measure bank concentration proxied by the Herfindahl-Hirschman-Index method on total assets [chapter 4 and 5], return-on-invested-capital [Chapter 6 Part A], and price [Chapter 6 Part B]. Secondly, we assumed the interaction of bank concentration with antitrust policy and the interaction of concentration with corporate governance proxies had not been explored at the time of this study. The first empirical chapter examined the impact of the HHI-Antitrust law on bank performance and managerial slack. The process of interacting governance proxies with competition measures contributed to policy efforts to improve corporate governance. Finally, this study contributes to the literature by examining the impact of income diversification as part of the control variables on bank performance. This study presents conclusive findings on changes in bank performance around the antitrust policy in European and North American banks. The coefficients of the antitrust policy dummy (AT2004) for European commercial banks, United States commercial banks, and European savings banks are positive and significant, which implies that the antitrust policy significantly increased return-on-average-equity. The findings provided a contrasting view to Giroud and Mueller (2010) that empirically showed that business combination laws significantly minimised return-on-asset in North American banks. As expected, the results are not homogeneous in the European Union. For instance, the antitrust policy was not significant for Cypriot commercial banks and significantly negative for the returns on assets of Swedish savings banks. The negative effects of antitrust policy on bank performance may explain the less competitive banking industry in Cypriot and the European savings banks are generally less competitive than commercial banks. In previous studies, the impact of HHI and business-law interaction on managerial quiet life had been explored in the United States (Giroud and Mueller, 2010). Their analysis indicated overhead, input, and real incomes surge due to business law introductions. There is a significant positive relationship between the HHI-BC-Law interaction and some quiet life proxies in non-competitive industries, i.e., the ratio of overhead costs to total assets; the cost of goods sold to sales; and the ratio of real wages to the number of employees, deflated by inflation. This type of research had not been conducted in Europe, and there are no comparative studies on North American Banks and Europe. In Table 19, 22-24, our findings are similar to Giroud and Mueller's (2010) study. Structural changes since the antitrust regulatory changes only significantly increased the negative ROE or the likelihood of poor bank performance. Contrary to Giroud and Mueller's findings, there is a significant negative relationship between the antitrust policy and QLTTTA (for European savings banks, U.S. commercial banks), while previous studies found no link. Our findings indicated that the overheads and employee wages decreased due to antitrust laws for less competitive and competitive banking industries. QLPEE (Ratio of personnel expenses to no of employees, deflated by CPI) – In support of previous literature (Bertrand and Mullainathan, 1999; 2003; Giroud and Muller, 2010), our REM model findings found a positive relationship between U.S. commercial banks QLPEE and antitrust policy

Activity-Based Costing In Small Manufacturing Firms: South African Study

This is an empirical investigation by means of a survey of the experiences and perceptions of activity-based costing (ABC), as an alternative to traditional costing, in small manufacturing firms in the Southern Gauteng region of South Africa. The objectives of the study were to determine the: Extent to which ABC is adopted; Perceptions of the benefits and the barriers of ABC; Experiences regarding the practice of ABC; and Reasons why firms do not adopt ABC. An analysis of 48 questionnaires indicated that 16 firms implemented ABC whilst 32 did not adopt this approach. The study firstly found that the ABC users have been in business significantly longer than the non-users, ABC users’ firms are significantly larger than the non-users firms’, there are some significant differences in the perceptions between the users and non-users regarding the benefits and the barriers of implementing ABC, that the ABC users are to a great extent neutral in respect of the practical issues of ABC and finally, that the non-users of ABC are of the opinion that ABC is too expensive to implement. The contribution of this study is that it fills the gap regarding to the lack of empirical research of ABC in small manufacturing firms and especially the lack of empirical research on ABC in South African firms

Efficiency of spanish mutual fund companies

La tesis estuvo compuesta de dos partes: La primera titulada Eficiencia en las Empresas Españolas Gestoras de Fondos Mutuos: Enfoque Basado en los Slacks, se compuso de cuatro secciones o capítulos de la siguiente manera: La sección 2 ofreció una revisión de la literatura temprana del Análisis Envolvente de Datos (DEA), una breve explicación de los modelos básicos, una breve reseña de las principales contribuciones a la eficiencia en las instituciones financieras, y una discusión de los dos métodos más populares. La sección 3 describió el modelo teórico propuesto y las variables utilizadas en el análisis. Sección 4 ilustró los datos, el análisis empírico y los resultados, la influencia de las variables-retornos a escala, y los análisis de robustez. Finalmente, la sección 5 concluyó y resumió las principales resultados del estudio. El análisis de las diferencias de productividad entre las empresas en los últimos años podría hacer posible identificar el éxito o fracaso de las iniciativas de gestión y también puede poner de relieve las diferentes estrategias adoptadas por las empresas durante la crisis financiera. En la literatura observamos que una amplia investigación se ha dedicado a la productividad en las instituciones financieras, por lo que sabemos, sólo Zhao Yue (2010) y Medeiros (2010) han estudiado la eficiencia de las empresas de fondos de inversión y compañías de fondos de pensiones, respectivamente. Por una parte, Zhao y Yue (2010) examinan la eficiencia de los fondos en china basados en sus competencias básicas, analizando tanto la inversión / investigación y los subsistemas de marketing / servicio. Mientras que Medeiros (2010) analiza los cambios en la productividad total de una muestra de empresas portuguesas de fondos de pensiones desde 1994 hasta 2007 a través las medidas DEA y el índice de Malmquist. Una posible explicación de esta escasa literatura puede ser la dificultad de identificar las variables específicas para la evaluación adecuada de estas empresas, sin llegar sólo a la réplica de los estudios anteriores centrados bancos y compañías de seguros. Desarrollar modelos de evaluación adecuados para las empresas de fondos de inversión para disponer de un abanico de posibilidades con variables específicas de la industria, complementaría los modelos analizados en otros sectores financieros. Por lo tanto, se convierte en un reto el desarrollar nuevas propuestas específicas para la industria de fondos, que consideren adecuada selección de inputs y outputs propios para las empresas gestoras en lugar de la simple replica de los modelos previamente estudiados en banca y seguros. En el presente estudio se llena este vacío de la literatura financiera, pretendiendo arrojar una luz adicional mediante el análisis de la eficiencia de las empresas de fondos de inversión en España, la cual es una de las industrias de fondos más relevantes en el mercado Europeo. La coexistencia de pocas, muy grandes y bien diversificadas EGFMs, junto con un gran número de pequeños gestores especializados hace que sea difícil obtener evaluaciones apropiadas de la industria. Por lo tanto, se plantó una metodología propia para el estudio y una selección de variables específicas para analizar adecuadamente de modo heterogéneo el conjunto de empresas españolas del sector de fondos de inversión. Para llevar a cabo el estudio, fue aplicado Análisis Envolvente de Datos (DEA), uno de los métodos más populares de las últimas décadas para la evaluación de la eficiencia en el sector financiero (ver por ejemplo estudios como los de: Berg et al, 1991; Berg et al, 1993 ; Schaffnit et al, 1997; Mlima y Hjalmarsson, 2002; Cummins et al, 2004; Casu et al, 2004; Cummins y Xie, 2008; Cummins et al, 2010; Holod y Lewis, 2011), y por otro lado el análisis de rendimiento de las carteras institucionales con enfoque alternativo a las tradicionales medidas de desempeño, es decir el desempeño de las carteras se trabajó con las relaciones funcionales entre rentabilidad y riesgo asociadas con la hipótesis de comportamiento (ejemplos de estudios: Murthi et al, 1997; Basso y Funari, 2001; Gregoriou et al, 2005; Eling, 2006; Lozano y Gutiérrez, 2008a, 2008b). En esta primera parte del estudio se aplicó el modelo original (Tone, 2001) y un conjunto único de variables específicas propias para la industria de fondos que complementan los modelos tradicionales de la banca y los seguros, lo cual permitió una evaluación precisa y completa de la eficiencia global de las EGFMs. La segunda parte llamada Evaluación Adicional de la Eficiencia en las EGFMs, se compuso de tres secciones o capítulos, asi: sección 2 se examinaron los principales conceptos de las variaciones al enfoque SBM original y los resultados empíricos de estas variaciones en las EGFMs españolas. La sección 3 ilustró el fenómeno de la persistencia en los scores de eficiencia y determinó aquellos factores relevantes que podrían potencialmente conducir a los resultados de persistencia obtenidos por las empresas a lo largo de nuestro horizonte de estudio. Finalmente, la Sección 4 concluyó y resumió los principales resultados del estudio. La aplicación de un enfoque de frontera eficiente no-orientado utilizando el SBM dentro de la metodología DEA, propuesto por Tone (2001), se discutió en detalle en la Parte I para justificar esta técnica como una herramienta inicial y apropiada para obtener los índices de eficiencia de las EGFMs. La consistencia de los resultados de eficiencia obtenidos mediante el uso de diferentes medidas de las variables más polémicas incluidas en nuestro modelo demostró la solidez de nuestros resultados. Sin embargo, el DEA y sus diversos modelos no pueden identificar a los competidores «más similares» que pueden servir como punto de referencia para las empresas analizadas a la luz de las diferencias notables que potencialmente se encuentren entre las empresas evaluadas. Este aspecto podría limitar la exactitud de algunos resultados en la literatura, además es especialmente importante en aquellos sectores donde los competidores muestran características variadas, tales como la industria de fondos española. Por lo cual, el conjunto empresas que conforman la frontera eficiente del DEA puede estar formado por grandes empresas de fondos de propiedad de bancos y ello puede no ser una referencia adecuada para los pequeños gestores independientes, repercutiendo entonces en engañosos rankings de eficiencia. En segunda parte de la tesis, logramos superar esta limitación utilizando las variaciones recientes e inexploradas del SBM original, propuestas por Tone (2010). Estas variaciones permitieron la comparación de las empresas de fondos con los competidores de su verdadera referencia «más similares» de acuerdo con los recursos y los objetivos de gestión, logrando con ello trabajar con las diversas características de la industria de los fondos de inversión españoles. Como un primer paso para cuantificar el sesgo debido a la utilización de los conjuntos de referencia inadecuados de los competidores, se analizó el efecto de las mencionadas variaciones en los scores de eficiencia obtenidos por el SBM original. La aplicación de estas nuevas técnicas del SBM mejoró la precisión de los resultados y complementó la simple consideración de los retornos a escala variable (VRS) para evaluar la eficiencia de las DMUs con diferentes características de escala. Estas variaciones propuestas por Tone (2010) basan en los hiperplanos en lugar de los vértices de la frontera, lo le permite el método descubrir los competidores (facets) más adecuados con respecto cada DMU analizada. Por último, la aplicación del proceso de agrupamiento (clustering) propuesto por Tone (2010), nos permitió una evaluación refinada de empresas eficientes, centrando el análisis únicamente en los competidores de similares características. Nuestra propuesta de agrupamiento se basó en los activos administrados y esfuerzo en personal de las EGFMs, ya que, como se encontró en la Parte I (Cuadro I-3), un gran número de empresas pequeñas de fondos gestionan una cuota de mercado residual y por otro lado un número reducido de grandes empresas de fondos dominan la industria. Bajo estos criterios de agrupamiento, asumimos la hipótesis de que las empresas de fondos con tamaño homogéneos deberían tener las mismas oportunidades de alcanzar la eficiencia en todas las fases de gestión, resolviendo así los posibles efectos de escala en la etapa de distribución y comercialización que se hayan contemplado en la Parte I. Adicionalmente el uso de esta variación basada en agrupamientos de Tone (2010) permitió la identificación de las empresas localmente eficientes en relación con los competidores con características similares de agrupamiento. Adicionalmente se planteó la necesidad de comprobar en esta segunda parte del estudio si los patrones de eficiencia obtenidos por las técnicas anteriores son persistentes en el tiempo, es decir, si los resultados de eficiencia obtenidos por las diferentes etapas corresponden a patrones estables del proceso de gestión. De lo contrario, si los resultados de eficiencia estuvieron sujetos a una variabilidad considerable a lo largo del tiempo, que pondría en duda las conclusiones obtenidas para cada año y en determinadas EGFMs; es decir, no sería posible diferenciar las estrategias de gestión eficaces de otros factores temporales. El resultado buscado fue la separación de aquellas empresas que siguen claramente los patrones de gestión eficientes de otras empresas con resultados de gestión mucho más erráticos en relación con sus competidores. Este fenómeno de persistencia se ha debatido ampliamente en la literatura sobre los fondos de inversión, pero, hasta donde sabemos, nunca aplicado a las EGFMs. Para probar esta hipótesis, se utilizó un enfoque no paramétrico basado en grupos de eficiencia en lugar de corrientes cuartiles o quintiles de clasificación empleados en la literatura, ello nos permitió identificar grupos homogéneos de eficiencia para proporcionar una mayor fiabilidad a nuestras conclusiones

Risk Preference and Tolerance of Small - Medium Sized Commercial Bank under Basel II

经过多次金融危机的洗礼，各国金融监管不断演化。巴塞尔协议几经修订，经历了巴塞尔Ⅰ、II和III三个阶段，逐步成为全球银行业最佳的理论与实践标准。中小商业银行是激发微观经济活力，提高经济增长效率的重要金融中介。风险偏好是银行对风险的态度，代表了银行风险与收益的统一。风险容忍度是银行的破产概率，代表了银行在正常经营状态下的最大风险承担。在准确界定风险偏好的基础上，科学测度风险容忍度，对于促进业务发展，提高中小商业银行的核心竞争力，具有重大理论意义与现实意义。 巴塞尔新资本协议为银行拓展业务提供了一个安全边际。但该协议往往主要关注一些“国际活跃”银行，而中小商业银行通常处于被忽视的尴尬境地。本研究...Global financial supervision is evolveing with financial crisis. Basel accords revised many times, take 3 steps, including Basel Ⅰ, Basel II and Basel III, which becomes the best theory and practice standards in global banking. Small-medium sized commercial bank is the most impotant financial intermedium in motivating microeconomy and promoting economy efficiency. Risk preference is the bank’s ris...学位：博士后院系专业：经济学院财政金融系_应用经济学学号：200917005

Evaluating productive efficiency:comparative study of commercial banks in Gulf countries

Financial institutes are an integral part of any modern economy. In the 1970s and 1980s, Gulf Cooperation Council (GCC) countries made significant progress in financial deepening and in building a modern financial infrastructure. This study aims to evaluate the performance (efficiency) of financial institutes (banking sector) in GCC countries. Since, the selected variables include negative data for some banks and positive for others, and the available evaluation methods are not helpful in this case, so we developed a Semi Oriented Radial Model to perform this evaluation. Furthermore, since the SORM evaluation result provides a limited information for any decision maker (bankers, investors, etc...), we proposed a second stage analysis using classification and regression (C&R) method to get further results combining SORM results with other environmental data (Financial, economical and political) to set rules for the efficient banks, hence, the results will be useful for bankers in order to improve their bank performance and to the investors, maximize their returns. Mainly there are two approaches to evaluate the performance of Decision Making Units (DMUs), under each of them there are different methods with different assumptions. Parametric approach is based on the econometric regression theory and nonparametric approach is based on a mathematical linear programming theory. Under the nonparametric approaches, there are two methods: Data Envelopment Analysis (DEA) and Free Disposal Hull (FDH). While there are three methods under the parametric approach: Stochastic Frontier Analysis (SFA); Thick Frontier Analysis (TFA) and Distribution-Free Analysis (DFA). The result shows that DEA and SFA are the most applicable methods in banking sector, but DEA is seem to be most popular between researchers. However DEA as SFA still facing many challenges, one of these challenges is how to deal with negative data, since it requires the assumption that all the input and output values are non-negative, while in many applications negative outputs could appear e.g. losses in contrast with profit. Although there are few developed Models under DEA to deal with negative data but we believe that each of them has it is own limitations, therefore we developed a Semi-Oriented-Radial-Model (SORM) that could handle the negativity issue in DEA. The application result using SORM shows that the overall performance of GCC banking is relatively high (85.6%). Although, the efficiency score is fluctuated over the study period (1998-2007) due to the second Gulf War and to the international financial crisis, but still higher than the efficiency score of their counterpart in other countries. Banks operating in Saudi Arabia seem to be the highest efficient banks followed by UAE, Omani and Bahraini banks, while banks operating in Qatar and Kuwait seem to be the lowest efficient banks; this is because these two countries are the most affected country in the second Gulf War. Also, the result shows that there is no statistical relationship between the operating style (Islamic or Conventional) and bank efficiency. Even though there is no statistical differences due to the operational style, but Islamic bank seem to be more efficient than the Conventional bank, since on average their efficiency score is 86.33% compare to 85.38% for Conventional banks. Furthermore, the Islamic banks seem to be more affected by the political crisis (second Gulf War), whereas Conventional banks seem to be more affected by the financial crisis

Predicting financial distress using corporate efficiency and corporate governance measures

Credit models are essential to control credit risk and accurately predicting bankruptcy and financial distress is even more necessary after the recent global financial crisis. Although accounting and financial information have been the main variables in corporate credit models for decades, academics continue searching for new attributes to model the probability of default. This thesis investigates the use of corporate efficiency and corporate governance measures in standard statistical credit models using cross-sectional and hazard models. Relative efficiency as calculated by Data Envelopment Analysis (DEA) can be used in prediction but most previous literature that has used such variables has failed to follow the assumptions of Variable Returns to Scale and sample homogeneity and hence the efficiency may not be correctly measured. This research has built industry specific models to successfully incorporate DEA efficiency scores for different industries and it is the first to decompose overall Technical Efficiency into Pure Technical Efficiency and Scale Efficiency in the context of modelling financial distress. It has been found that efficiency measures can improve the predictive accuracy and Scale Efficiency is a more important measure of efficiency than others. Furthermore, as no literature has attempted a panel analysis of DEA scores to predict distress, this research has extended the cross sectional analysis to a survival analysis by using Malmquist DEA and discrete hazard models. Results show that dynamic efficiency scores calculated with reference to the global efficiency frontier have the best discriminant power to classify distressed and non-distressed companies. Four groups of corporate governance measures, board composition, ownership structure, management compensation and director and manager characteristics, are incorporated in the hazard models to predict financial distress. It has been found that state control, institutional ownership, salaries to independent directors, the Chair’s age, the CEO’s education, the work location of independent directors and the concurrent position of the CEO have significant associations with the risk of financial distress. The best predictive accuracy is made from the model of governance measures, financial ratios and macroeconomic variables. Policy implications are advised to the regulatory commission