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Total Factor Productivity and Shareholder Returns in Banking

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  • Franco Fiordelisi

    (University of Rome III)

  • Phil Molyneux

    (Bangor University)

Abstract

This paper examines shareholder value drivers in European banking focusing on the efficiency and productivity features of individual banks. In particular, we analyse the value relevance of bank cost efficiency and total factor productivity (TFP) (in all its components, including technological change, pure technical efficiency change and scale efficiency change) to see how these influence shareholder value creation in European banking. The paper focuses on the French, German, Italian and UK banking systems over the period 1995-2002 and includes both listed and non-listed banks. We find that TFP changes best explain variations in shareholder value (measured by market adjusted returns, MAR, for listed banks and by the ratio of EVAbkg to invested capital at time t-1 for non-listed banks). In both samples, we also find that technological change seems to be the most important component of TFP influencing shareholder value creation in European banking.

Suggested Citation

  • Franco Fiordelisi & Phil Molyneux, 2010. "Total Factor Productivity and Shareholder Returns in Banking," Working Papers 10005, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    • Handle: RePEc:bng:wpaper:10005
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    More about this item

    Keywords

    Value-relevance; shareholder value; Data Envelopment Analysis (DEA); Malmquist productivity index; Banking;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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