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What Drives Profitability: Level or Growth Efficiency?

Misra, Biswa Swarup and Sahoo, Biresh (2024): What Drives Profitability: Level or Growth Efficiency?

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Examining the impact of ratio-based efficiency metrics, such as cost-to-income-ratio, and multifactor-based level efficiency on profitability can be potentially misleading. Our examination of Indian banks spanning the period from 2006 to 2023 reveals that profitability is significantly influenced by multifactor-based growth efficiency, rather than level efficiency. Notably, this finding remains robust when using either conventional or risk-adjusted measure of market power.

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