9th Symposium on
Finance, Banking, and Insurance
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Joël Petey |
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IEP Strasbourg |
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The risk management activities of banks may lead to a risk-return trade-off, sign of risk aversion. In this context, the hypothesis of profit maximisation leads to assume risk neutrality of economic agents. Measuring bank efficiency grounding on a cost or profit function might then introduce a bias in performance measurement. In order to take account of the generalisation of the banker’s preferences, we specify a utility function derived from the Almost Ideal Demand System. The system of share equations is then conditioned by a first order condition on the level of equity, making it endogenous. The model is estimated on a sample of 89 French banks from 1993 to 1996. Using the variance of the fitted profit as a proxy for risk, we construct a non parametric risk return efficiency frontier considering risk as a unique input in order to produce a unique output : profit. The analysis of the efficiency scores shows the impact of assets and liabilities choices on risk and return by regressing the scores on the share of loans, deposits and equity. |
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