**1. Introduction**

The research interest in bank e fficiency has been recognized for a long time since banks play a central role in the economic development and growth of a country. The presence of an increasingly competitive market reinforces the grea<sup>t</sup> importance of assessing banks' performance to continuously improve their financial condition (Beck et al. 2000; Rajan and Zingales 1998). However, an e fficient and profitable banking system is even more important for countries characterized as belonging to the civil law model, more oriented to the banking system, and less to the capital market system1.

Due to liberalization and internationalization, competition in the financial sector has increased and, consequently, the pressure to obtain higher levels of profitability and e fficiency increased as well (Meles et al. 2016). Moreover, the world banking sector, with the recent global financial crisis, had di fficulty accessing financing, causing problems in terms of financial autonomy. This event has given greater importance to the banking sector concerning the global economy.

<sup>1</sup> For an interesting seminal paper which attempts to combine insights from the theory of corporate finance, institutional economics, and different legal and economic systems, see La Porta et al. (1998). See also Levine (2002) for a summary of the theoretical views on bank-based and market-based systems.

Therefore, Athanasoglou et al. (2008) displayed that profitability is also important for the survival of banks, since the higher their profitability, the greater their economic capacity to cope with unfavorable situations. Besides this, e fficiency is also a perception that guarantees the survival of the banks and that should be explained. This concept is often used as a synonym for productivity, however, it is a relative concept. It compares what was produced, given the resources available, with what could have been produced considering the same resources.

In this context, it is necessary to understand better which factors are determinants for bank efficiency, i.e., which variables could be more relevant for the manager´s decisions to improve bank performance.

Thus, the purpose of this study is to investigate how intrinsic characteristics of banks in Eurozone countries, have an impact on bank e fficiency for a period covering six consecutive years, 2011–2016. Member countries should have similar levels of economic performance, especially in the banking system, as European Union regulatory changes are designed to push the industry into the direction of a single market, especially in countries with a common currency.

In this view, the present work o ffers several relevant contributions to the existing literature. Firstly, the paper focuses on the banking sector, which plays a central role in the economic development and growth of a country. A profitable and e fficient sector leads to more economic development. Secondly, it studies Eurozone banking, which since the financial crisis has faced major changes in terms of performance and restructuring (e.g., new capital requirements, new demands on the adequacy of directors, incentive system). Moreover, several studies have already been carried out with the aim of comparing the various economic cycles (e.g., Tsionas et al. 2015), and others helped us to identify the various moments of crisis, speculative period and deep crisis (for example, Neves et al. 2019). To that extent, we believe that our work can be considered original because it emphasizes a period not of a deep and global financial crisis, but of a sovereign debt crisis, called the eurozone crisis.

Thirdly, dual analysis is proposed, and to the best of the literature knowledge, this topic has not been studied jointly: (1) the dynamic evaluation of bank profitability uses the generalized method of moments (GMM) method (Arellano and Bond 1991; Arellano and Bover 1995; Blundell and Bond 1998), where past performance impacts present performance; (2) and the value-based data envelopment analysis (DEA) method is also used to measure banking e fficiency (Gouveia et al. 2008). The GMM system provides new evidence about which bank-specific variables are important to explain banks´ profitability. After that, the value-based DEA method, considering these specifics variables, identifies which banks in the dataset are the best performers. DEA is a technique for measuring the relative efficiency of peer decision making units (DMUs) doing business under the same operating conditions and allows the consideration of multiple inputs and multiple outputs in global performance evaluation. As an e fficiency measure for a given DMU, the DEA uses the maximum of weighted outputs to weighted inputs.

The information that results from this type of dual analysis can be used to help the managers to identify the gaps of ine fficiency, i.e., the factors in which further improvements are needed, to set future development strategies and to identify the best targets for the ine fficient DMUs. Without discharge of the importance of the traditional ratio measures, it is known that each of the ratios examines only part of the activities of the DMU under analysis, leading to insu fficient information on the global performance. Several authors confirm that DEA is one of the most successful operational research techniques used in evaluating banks' performance (Fethi and Pasiouras 2010; Paradi and Zhu 2013).

Finally, the results show that managemen<sup>t</sup> decisions, reflected in the specific characteristics of the bank, are important factors explaining profitability. Moreover, the findings highlight that if bank managers want to protect their performance, they will have to improve cost managemen<sup>t</sup> e fficiency. This study can be considered as an extension to the existing literature because it focuses on the early years after the crisis (e.g., Christopoulos et al. 2019; Wild 2016). Such exposure can be relevant for managers, regulators and potential investors. The relative comparison of bank performance across Eurozone countries enables us to identify the best practices in a way that could allow policies to be established to improve the e fficiency of less e fficient banks, facilitate an understanding of the impacts

of constant regulatory changes on banking operations and investigate the ability of banks to realign their business with banking operations.

The remainder of the paper is organized as follows: Section 2 surveys the relevant literature on banking profitability and reviews the hypotheses to test. Section 3 is dedicated to the data and methodological framework. The results for the dynamic evaluation are presented in Sections 4 and 5 provides some final considerations.
