engleski

DEA approach vs accounting approach as a measure of efficiency of financial institutions in the Republic of Croatia

The main goal of the paper is to compare and to identify correlation of bank’s and insurance company’s efficiency measure results using Data Envelopment Analysis (DEA) on the one side and calculating accounting ratios on the other side. We find that accounting ratios are a common tool in banks and insurance companies’ efficiency analysis because they are easy to calculate and use. The results of DEA can be different due to specific approach in calculation and interpretation that includes defining relatively efficient DMUs which define the efficient frontier and evaluate the inefficiency of other, relatively inefficient DMUs. Thus, DEA approach is better for measuring overall technical inefficiency. The research includes only banking industry and insurance sector in the Republic of Croatia due to their relatively high asset share of about 83% in total financial sector asset. The paper examines advantages and disadvantages of measuring efficiency using DEA approach and accounting profitability ratios, which we use as a base for forming an opinion and conclusion about financial sector efficiency in the periods before and after recent financial and economic crises.

Croatia; banks; insurance companies; efficiency; data envelopment analysis; accounting ratios; crisis

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