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Australian Banking Efficiency and its Relation to Stock Returns

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Author Info

  • Joshua Kirkwood

    (Reserve Bank of Australia)

  • Daehoon Nahm

    ()
    (Department of Economics, Macquarie University)

Abstract

This paper considers cost and profit efficiency for Australian banks between 1995 and 2002. Data Envelopment Analysis (DEA) is used to construct an efficient frontier for ten banks listed on the Australian Stock Exchange. Empirical results indicate the major banks have improved their cost and profit efficiency, while the regional banks have experienced little change in cost efficiency, and a decline in profit efficiency. This result provides interesting insights into the structure of the Australian banking industry. Malmquist indices indicate technological change is the dominant source of improvements in total factor productivity over the period. An attempt is made to relate the changes in efficiency to stock returns, using a method superior to that previously adopted. Results indicate that for our sample changes in firm efficiency are reflected in stock returns.

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File URL: http://www.econ.mq.edu.au/research/2005/Nahm_KWood_ABE_2.pdf
File Function: First Version, 2005
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Bibliographic Info

Paper provided by Macquarie University, Department of Economics in its series Research Papers with number 0508.

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Length: 26 pages.
Date of creation: May 2005
Date of revision:
Handle: RePEc:mac:wpaper:0508

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Postal: Sydney NSW 2109
Web page: http://www.econ.mq.edu.au/
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Related research

Keywords: DEA; Banks; Profit Efficiency; Cost Efficiency;

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Citations

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Cited by:
  1. Fethi, Meryem Duygun & Pasiouras, Fotios, 2010. "Assessing bank efficiency and performance with operational research and artificial intelligence techniques: A survey," European Journal of Operational Research, Elsevier, vol. 204(2), pages 189-198, July.
  2. Avkiran, Necmi K. & Morita, Hiroshi, 2010. "Predicting Japanese bank stock performance with a composite relative efficiency metric: A new investment tool," Pacific-Basin Finance Journal, Elsevier, vol. 18(3), pages 254-271, June.
  3. Werner, Karl & Moormann, J├╝rgen, 2009. "Efficiency and profitability of European banks: how important is operational efficiency?," Frankfurt School - Working Paper Series 111, Frankfurt School of Finance and Management.
  4. Avkiran, Necmi K. & Morita, Hiroshi, 2010. "Benchmarking firm performance from a multiple-stakeholder perspective with an application to Chinese banking," Omega, Elsevier, vol. 38(6), pages 501-508, December.
  5. 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.
  6. Saadet Kasman & Adnan Kasman, 2011. "Efficiency, Productivity and Stock Performance: Evidence from the Turkish Banking Sector," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(3), pages 355-372, September.
  7. Sturm, Jan-Egbert & Williams, Barry, 2008. "Characteristics determining the efficiency of foreign banks in Australia," Journal of Banking & Finance, Elsevier, vol. 32(11), pages 2346-2360, November.

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