Efficiency and Stock Performance in European Banking

Abstract

Recent competitive pressures have progressively driven banks to strategically focus on generating returns to shareholders. Therefore, the investigation of the determinants of bank performance and their relationship with share prices has become increasingly important. This paper extends the literature on market-based accounting to examine the relationship between stock prices and efficiency. Specifically, it investigates if changes in stock performance can be explained by changes in operating efficiency, derived by parametric and non-parametric methods. Results seem to suggest that changes in efficiency are reflected in changes in stock prices and that stocks of cost efficient banks tend to outperform their inefficient counterparts. Copyright Blackwell Publishers Ltd, 2006.

International evidence on the impact of regulations and supervision on banks’ technical efficiency: an application of two-stage data envelopment analysis

“…(p. 1869). Thus, we use total costs as in Casu and Molyneux (2003) and Beccalli et al (2006), rather than personnel or total non-interest expenses used in some other studies. Mester (1996), Altunbas et al (2000), and Drake and Hall (2003) among others point out that failure to adequately account for risk can have a significant impact on relative efficiency scores.…”

“…Other studies, such as the ones of Gonzalez (2005a), Kapopoulos and Siokis (2005) and Casu and Girardone (2006) focus on the relation of market structure and bank efficiency by regressing measures such as market share and market concentration against efficiency scores. Finally, Beccalli et al (2006) conducted the first cross-country study linking efficiency and stock performance, providing evidence of a positive association between changes in cost efficiency and annual stock returns.…”

What Influences Bank Stock Prices in Times of Crisis? An International Survey

“…Cantor and Johnson (1992) identify, through an econometric methodology, a direct and significant relationship between increases in capital (Tier 1 and total capital) and the prospects of return of stock. Similarly, various studies (Beccalli et al, 2006;Chu & Lim, 1998) through the use of parametric (such as the Stochastic Frontier Approach) and non-parametric techniques (such as the Data Envelopment Analysis method) show a positive relationship between some production efficiency variables (such as the cost to income ratio) and performance of bank shares. Other analyses (Lakonishok et al, 1994), conducted through the use of alternative regression models, such as the Capital Asset Pricing Model, evaluate whether the influence of a budgetary indicator on the share price remains even in the presence of adjustments for systematic risk factors attributable to differences in the risk threat of banks.…”

Sustainability and Efficiency of the European Banking Market after the Global Crisis: The Impact of Some Strategic Choices

“…During the 1990s, this concept, together with the concept of productivity, was extended to the studies dealing with financial intermediaries (for a literature review about the efficiency of financial intermediaries different from banks, see [9,10]). Then, the literature divided into two main strands: (1) the works dealing with methodological issues such as the shape of the production/cost frontier, the choice between parametric and non-parametric approaches [11][12][13][14][15][16][17]; and (2) studies focused on empirical issues related to efficiency. Among these works, some studies focused on the relationship between efficiency and some environmental variables or managerial variables.…”