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Banking Efficiency and Stock Market Performance: An Analysis of Listed Indonesian Banks

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Author Info
Muliaman D. Hadad (Bank Indonesia, Jakarta, Indonesia)
Maximilian J. B. Hall () (Dept of Economics, Loughborough University)
Wimboh Santoso (Bank Indonesia, Jakarta, Indonesia)
Ricky Satria (Bank Indonesia, Jakarta, Indonesia)
Karligash Kenjegalieva () (Dept of Economics, Loughborough University)
Richard Simper () (Dept of Economics, Loughborough University)

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Abstract

This paper examines the monthly efficiency and productivity of listed Indonesian banks and their market performance through the prism of two modelling techniques, efficiency and super-efficiency, over the period January 2006 to July 2007. Within this research strategy we employ Tone’s (2001) non-parametric, Slacks-Based Model (SBM) and Tone’s (2002) super-efficiency SBM combining them with recent bootstrapping techniques, namely the non-parametric truncated regression analysis suggested by Simar and Wilson (2007). In the case of the SBM efficiency scores, the Simar and Wilson methodology was adapted to two truncations, whereas in the super-efficiency framework the original technique was utilised. As suggested by neo-classical theory, we find that the stock market values banks in accordance with their performance. Moreover, it is found that the JCI index of the Indonesian Stock Exchange is positively related to bank efficiency. Another interesting finding is that the coefficient for the share of foreign ownership is negative and statistically significant in the super-efficiency modelling. This suggests that Indonesian banks with foreign ownership tend to be less efficient than their domestic counterparts. Finally, Malmquist productivity results suggest that, over the study’s horizon, the sample banks displayed volatile productivity patterns in their profit-generating operations.

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Paper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2008_07.

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Date of creation: Aug 2008
Date of revision: Aug 2008
Handle: RePEc:lbo:lbowps:2008_07

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Related research
Keywords: Indonesian Banking; Emerging Markets; Productivity; Efficiency.;

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Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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  1. Muliaman D. Hadad & Maximilian J. B. Hall & Wimboh Santoso & Ricky Satria & Karligash Kenjegalieva & Richard Simper, 2008. "Efficiency and Malmquist Indices of Productivity Change in Indonesian Banking," Discussion Paper Series 2008_08, Department of Economics, Loughborough University, revised Aug 2008. [Downloadable!]
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