An interactive benchmark model ranking performers - Application to financial holding companies

Authors:
Wen-Min Lu;Shih-Fang Lo
Affiliations:
Department and Graduate Institute of Finance, National Defense University, No. 70, Section 2, Zhongyang North Road, Beitou, Taipei 112, Taiwan;International Division, Chung-Hua Institution for Economic Research, Rm. 531, 75 Chang-Hsing Street, Taipei 106, Taiwan
Venue:
Mathematical and Computer Modelling: An International Journal
Year:
2009

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Abstract

This study aims to resolve the problems associated with ranking fairly for both efficient and inefficient decision making units (DMUs) by proposing an 'interactive benchmark' model. The main concept is derived as a result of taking one certain DMU as a fixed benchmark and estimating the efficiency scores of the remaining DMUs based on that benchmark pair by pair. The process is repeated until all of the DMUs have served as the fixed benchmark. The DMUs can then be evaluated on a fair basis by computing the average efficiency scores using the above rolling procedure. The model is applied to fourteen financial holding companies (FHCs) in Taiwan using a production transfer model that is adopted by Seiford and Zhu [L.M. Seiford, J. Zhu, Profitability and marketability of the top 55 US commercial banks, Management Science 45 (9) (1999) 1270-1288]. The empirical results can serve as valuable reference to both policy-makers and investors.