Cost efficiency impact of bank branch characteristics and location

Abstract

PurposeThe purpose of this study is to examine the operating efficiency of a set of 171 retail orientation bank branches of a large commercial bank in Greece, offering relatively homogenous products in a multimarket business environment.Design/methodology/approachFor the measurement of the indices of efficiency the internationally known method of data envelopment analysis (DEA) was used. Two semi‐parametrical statistical tests and one additional Kolmogorov–Smirnov test (non‐parametric) were conducted to choose the appropriate DEA model for the analysis. Using regression analysis, the paper also seeks to examine the effects of selected branch characteristics (profitability, size, market power) and location to variations on operating efficiency.FindingsThe results indicate the scope for substantial efficiency improvements. It is also observed that, within the branch characteristics variable, more profitable and larger branches have higher operating efficiency. Finally, holding profitability and branch size constant the analysis showed that rural branches tend on average to be more efficient than urban branches.Originality/valueThe paper examines the operating efficiency of bank branches of a large commercial bank in Greece.