Two-stage DEA in banks: Terminological controversies and future directions

Given the importance that two-stage Data Envelopment Analysis (DEA) models have attained in recent years, this paper presents a systematic review of the literature on the topic focusing on the banking industry. We discuss the two-stage terminology itself, which is not yet not consolidated. We also discuss the current state-of-the-art and present opportunities, as well as challenges, for future studies. We analyse 59 papers, divided them into ten classes that cover various perspectives of two stage DEA studies, such as the economic context, geographic region of the banking units, methodological characteristics, and type of the models, either internal or external. Additionally, we investigate several controversial points regarding two-stage DEA models, such as the variable selection approach, the technique used in the second stage, and the possible impact of non-discretionary variables on efficiency. Results of the literature review indicate the lack of a uniform or universal terminology for two-stage DEA models in the baking industry. Moreover, the main objective of most papers involves extending or improving DEA models. Radial models, with variable returns of scale, and the intermediation approach are the most frequent configurations. Finally, we identify seven gaps in the literature for both internal and external two-stage DEA models and two specific gaps to external ones. Each gap is discussed in depth in the text and can be considered opportunities for future studies.