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Bank efficiency and share prices in China: empirical evidence from a three-stage banking model

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  • Fadzlan Sufian
  • Muhamed Zulkhibri Abdul Majid

Abstract

This paper examines the relationship between the efficiency of China banks and its share price performance. Our analysis consists of three parts. First, we calculate the annual share price returns of the banks for each year between 1997 and 2006. Then we employ the data envelopment analysis (DEA) window analysis method to estimate the efficiency of each bank. Finally, we regress the annual share price returns on the change in efficiency, while controlling for other bank specific traits. The empirical findings suggest that large Chinese banks have exhibited higher technical and pure technical efficiency levels compared to their small and medium sized bank counterparts, while the medium sized banks have exhibited higher scale efficiency. The relationship between Chinese banks' efficiency and share price performance suggest that bank efficiency estimates derived from the DEA window analysis method contributes significant information towards share price returns beyond that provided by financial information.

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  • Fadzlan Sufian & Muhamed Zulkhibri Abdul Majid, 2009. "Bank efficiency and share prices in China: empirical evidence from a three-stage banking model," International Journal of Computational Economics and Econometrics, Inderscience Enterprises Ltd, vol. 1(1), pages 23-47.
    • Handle: RePEc:ids:ijcome:v:1:y:2009:i:1:p:23-47
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    Cited by:

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    2. Dipasha Sharma, 2018. "Stock Market Performance and Efficiency of Banks in a Developing Economy: Evidence from the Indian Banking Sector," IIM Kozhikode Society & Management Review, , vol. 7(2), pages 178-193, July.
    3. Abhilash Nair & Vinod R, 2015. "Determinants of allocative, scale and scope efficiencies of Indian banks," Working papers 177, Indian Institute of Management Kozhikode.
    4. Xiaoqing Maggie Fu & Yongjia Rebecca Lin & Philip Molyneux, 2015. "Bank Efficiency and Shareholder Value in Asia Pacific," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Bank Competition, Efficiency and Liquidity Creation in Asia Pacific, chapter 4, pages 72-95, Palgrave Macmillan.
    5. Tan, Yong & Anchor, John, 2017. "The impacts of risk-taking behaviour and competition on technical efficiency: Evidence from the Chinese banking industry," Research in International Business and Finance, Elsevier, vol. 41(C), pages 90-104.
    6. Chen, Xiang & Wang, Yujia & Wu, Xin, 2022. "Exploring the source of the financial performance in Chinese banks: A risk-adjusted decomposition approach," International Review of Financial Analysis, Elsevier, vol. 80(C).
    7. Norma Wijayanti & Anton A. Setyawan & M.Farid Wajdi & Imronudin, 2022. "Performance Measurement of Islamic Bank in Indonesia, is Merger Necessary?," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 11(1), pages 199-206, January.

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    More about this item

    Keywords

    bank efficiency; share prices; data envelopment analysis; DEA window analysis; China; banking models.;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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