Data Envelopment Analysis for Evaluating Banks’ Efficiency in Maximizing Shareholders’ Wealth: Evidence From Selected Bangladeshi Commercial Banks

This paper seeks to examine the efficiency of selected Bangladeshi commercial banks in maximizing shareholder’s wealth during the period of 2006-11. The paper utilized input-oriented Data Envelopment Analysis assuming both Constant (CRS) and Variable Return to Scales (VRS). Number of employees, interest expenses, total deposits, and number of branches are considered as inputs and interest income, net profit available to shareholders, and net asset values are considered as outputs. Only three banks among twenty nine banks have been found inefficient during the entire study period under both assumptions. The average efficiency scores computed under CRS ranges from 48.55% to 100% while the figures range from 49.59% to 100% under VRS. The results suggest that pure technical inefficiency contributed more than the scale inefficiency to commercial banks’ overall inefficiency in Bangladesh. The Islami Sharia based banks are largely identified as inefficient whereas the large banks are found to be more efficient.