A decision model to predict profitability using revised Thompsonâ–“Thrall profit ratios in DEA with an application to South Asian banks

Author: Dharmapala P. Sunil   Edirisuriya Piyadasa  

Publisher: Inderscience Publishers

ISSN: 1745-7645

Source: International Journal of Operational Research, Vol.12, Iss.4, 2011-11, pp. : 407-429

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Abstract

Many researchers in the past have addressed the issue of profitability of banks from different perspectives using financial ratios and decision models. Thompson et al. (1995) introduced linked-cone (LC) profit ratios with assurance regions (AR) in data envelopment analysis. In this paper, we revise LCâ–“AR and show a contrast between Thompsonâ–“Thrallâ–™s and revised profit ratios. We propose a decision model to classify banks as profit-makers, loss-makers or neither, when â–~market pricesâ–™ that form AR are not available and hence LCâ–“AR profit ratios do not exist. We demonstrate how this method works for a set of South Asian banks.

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