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Australian Banking Efficiency and Its Relation to Stock Returns

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  • JOSHUA KIRKWOOD
  • DAEHOON NAHM

Abstract

We used Data Envelopment Analysis to evaluate cost efficiency of Australian banks in producing banking services and profit between 1995 and 2002. Empirical results indicate the major banks have improved their efficiency in producing banking services and profit, while the regional banks have experienced little change in the efficiency of producing banking services, and a decline in the efficiency of producing profit. An attempt is made to relate the changes in efficiency to stock returns. Results indicate that for our sample, changes in firm efficiency are reflected in stock returns. Copyright © 2006 The Economic Society of Australia.

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  • Joshua Kirkwood & Daehoon Nahm, 2006. "Australian Banking Efficiency and Its Relation to Stock Returns," The Economic Record, The Economic Society of Australia, vol. 82(258), pages 253-267, September.
  • Handle: RePEc:bla:ecorec:v:82:y:2006:i:258:p:253-267
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    Cited by:

    1. 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.
    2. repec:kap:iaecre:v:23:y:2017:i:4:d:10.1007_s11294-017-9654-8 is not listed on IDEAS
    3. Varelas, Erotokritos, 2014. "Bank Industry Structure and Public Debt," MPRA Paper 58437, University Library of Munich, Germany.
    4. Liadaki, Aggeliki & Gaganis, Chrysovalantis, 2010. "Efficiency and stock performance of EU banks: Is there a relationship?," Omega, Elsevier, vol. 38(5), pages 254-259, October.
    5. 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.
    6. 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.
    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.
    8. 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.
    9. Fu, Xiaoqing (Maggie) & Lin, Yongjia (Rebecca) & Molyneux, Philip, 2014. "Bank efficiency and shareholder value in Asia Pacific," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 200-222.
    10. Werner, Karl & Moormann, Jürgen, 2009. "Efficiency and profitability of European banks: how important is operational efficiency?," Frankfurt School - Working Paper Series 111, Frankfurt School of Finance and Management.
    11. Abul Shamsuddin & Dong Xiang, 2012. "Does bank efficiency matter? Market value relevance of bank efficiency in Australia," Applied Economics, Taylor & Francis Journals, vol. 44(27), pages 3563-3572, September.
    12. Sufian, Fadzlan & Abdul Majid, Muhamed Zulkhibri, 2008. "The Relationship between Risk-Return Trade-Off and Productive Efficiency: Evidence from Malaysia Banking Sector," MPRA Paper 61817, University Library of Munich, Germany.
    13. 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.
    14. repec:eco:journ1:2017-03-87 is not listed on IDEAS
    15. Salim, Ruhul & Arjomandi, Amir & Seufert, Juergen Heinz, 2016. "Does corporate governance affect Australian banks' performance?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 43(C), pages 113-125.
    16. Moradi-Motlagh, Amir & Babacan, Alperhan, 2015. "The impact of the global financial crisis on the efficiency of Australian banks," Economic Modelling, Elsevier, vol. 46(C), pages 397-406.
    17. Erotokritos Varelas, 2015. "Number of Banks, Public Debt, and Workable Competition," Review of Economics & Finance, Better Advances Press, Canada, vol. 5, pages 41-51, February.

    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • 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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