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http://dx.doi.org/10.14400/JDC.2019.17.5.117

Analysis of influencing on Inefficiencies of Korean Banking Industry using Weighted Russell Directional Distance Model  

Yang, Dong-Hyun (Division of management, Injae University)
Chang, Young-Jae (Division of management, Injae University)
Publication Information
Journal of Digital Convergence / v.17, no.5, 2019 , pp. 117-125 More about this Journal
Abstract
This study measured inefficiencies of Korean banks with weighted Russell directional distance function, WRDDM, for the years of 2004-2013. Checking contributions of inputs and outputs to these inefficiencies, we found that non-performing loan as undesirable output was the most influential factor. The annual average of inefficiencies of Korean banks was 0.3912, and it consisted of non-performing loan 0.1883, output factors 0.098 except non-performing loan, input factors 0.098. The annual average inefficiency went sharply up from 0.2995 to 0.4829 mainly due to the sharp increase of inefficiency of non-performing loan from 0.1088 to 0.2678 before and after 2007-2008 Global financial crisis. We empirically showed the non-performing loan needed to be considered since it was the most important factor among the influential factors of technical inefficiency such as manpower, total deposit, securities, and non-performing loan. This study had some limitation since we did not control financial environment factor in WRDDM.
Keywords
Financial Crisis; Weighted Russell Directional Distance Model; Technical Efficiency; Desirable Output; Undesirable Output; Nonperforming Loan;
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