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Abstract
The paper aims to improve the methodology of measuring efficiency of Latvian banks. Efficiency scores were calculated with application of non-parametric frontier technique Data Envelopment Analysis (DEA). Input-oriented DEA model under Variable Returns to Scale (VRS) assumption was used. Potential model variables were selected based on the intermediation and profitability approach. Fourteen alternative models with different inputs-outputs combinations were developed for the research purposes. To substantiate the variables selection for DEA model the received data was processed, using such methods, as correlation analysis, linear regression analysis, analysis of mean values, and two-samples Kolmogorov-Smirnov test. The research results assisted the authors in providing general recommendations about the variables selection for DEA application in the Latvian banking sector. The present research contributes to the existing analytical data on bank performance in Latvia. The empirical findings provide a background for further studies, in particular, the efficiency of Latvian banks could be analysed in the extended time period.
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Notes on contributors
Jelena Titko
Jelena TITKO is an Assistant Professor at the Department of Corporate Finance and Economics of Riga Technical University (Latvia). Areas of her research interest: performance management and customer relationship management in banking, drivers of bank value, service quality and customer satisfaction, valuation of a company, financial literacy.
Jelena Stankevičienė
Jelena STANKEVIČIENĖ is a Professor at the Department of Finance Engineering of Vilnius Gediminas Technical University (Lithuania). Her main research topics include assets and liability management, regulation of financial institution, financial management for value creation, value engineering.
Nataļja Lāce
Nataļja LĀCE is a Professor at Riga Technical University (Latvia). She is a head of the Department of Corporate Finance and Economics. Areas of her research interest: business financial management, critical success factors of small and medium-sized enterprises, personal finance, corporate finance, company's viability.