**2. Literature Review and Hypothesis**

According to Varmaz (2007) the factors that most influence the profitability of banks are market conditions regarding competition as well as service production capability. Therefore, profitability corresponds to how the company is managing its resources to create value. To measure the profitability of banks, the return on average equity (ROAE) and return on average assets (ROAA) ratios are traditionally used, because they are connected with some advantages. The ROAE provides a direct assessment of the financial return for shareholder's investment (Lee and Kim 2013) and the ROAA shows the bank's ability to generate revenue through better asset utilization (Ongore and Kusa 2013). Trujillo-Ponce (2013) argues that ROAA is perhaps the most important measure for comparing the efficiency and the operational performance of banking institutions. This is because the ROAA explains the success of the managemen<sup>t</sup> in obtaining results with the assets that the bank holds.

The ROAE considers the contribution of all equity and o ff-balance sheet events, while the ROAA disregards o ff-balance sheet activities (Athanasoglou et al. 2008), as commitments assumed by the bank, which generate income but are not recorded in the accounts of the bank. The new challenge for bankers is focused on balance sheet managemen<sup>t</sup> in their loan pricing discipline with strong control of operating expenses. Thus, this suggests that ROAA could be the best measure to capture bank performance.

According to extensive previous studies, the importance of factors determining the banks' performance is not new and was strengthened in the last two decades due to the fall in banking earnings, accelerated by the global financial crisis (Ghosh 2016).

These earlier studies have focused their analyses on individual country-specific studies like Athanasoglou et al. (2008); Dietrich and Wanzenried (2011); García-Herrero et al. (2009); Rumler and Waschiczek (2016), among others. Further authors already consider cross country data, for instance, Bitar et al. (2018); Dietrich and Wanzenried (2014); Nguyen (2018); Pasiouras and Kosmidou (2007); Staikouras and Wood (2004).

According to Trujillo-Ponce (2013), the determinants of bank performance could be dichotomized. First, there is a group of bank-specific determinants, resulting directly from managerial decisions, such as asset composition, capitalization, operational e fficiency or size. The second group of determinants includes factors relating to the macroeconomic environment or industry specificities, such as industry concentration, economic growth, inflation, and interest rates.

In this paper, on the one hand, a model with specific characteristics of the bank, to understand which are determinant in the achievement of profitability will be considered. From there, using the value-based DEA method, it will be possible to observe how important these variables are in the definition of an e fficient bank, using a cross-country comparison. Therefore, this article starts with a set of variables widely debated in the literature to estimate the bank's profitability and ends with the e fficiency evaluation of banks via value-based DEA, which confirms the importance of the economic environment.
