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Total factor productivity and shareholder returns in banking

  • Fiordelisi, Franco
  • Molyneux, Phil

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 U.K. 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.

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Article provided by Elsevier in its journal Omega.

Volume (Year): 38 (2010)
Issue (Month): 5 (October)
Pages: 241-253

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Handle: RePEc:eee:jomega:v:38:y:2010:i:5:p:241-253
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  1. Allen N. Berger & Loretta J. Mester, 1997. "Inside the Black Box: What Explains Differences in the Efficiencies of Financial Institutions?," Center for Financial Institutions Working Papers 97-04, Wharton School Center for Financial Institutions, University of Pennsylvania.
  2. Sathye, Milind, 2001. "X-efficiency in Australian banking: An empirical investigation," Journal of Banking & Finance, Elsevier, vol. 25(3), pages 613-630, March.
  3. Forsund,F.R. & Sarafoglou,N., 2000. "On the origins of data envelopment analysis," Memorandum 24/2000, Oslo University, Department of Economics.
  4. Das, Abhiman & Ray, Subhash C. & Nag, Ashok, 2009. "Labor-use efficiency in Indian banking: A branch-level analysis," Omega, Elsevier, vol. 37(2), pages 411-425, April.
  5. Stiroh, Kevin J., 2000. "How did bank holding companies prosper in the 1990s?," Journal of Banking & Finance, Elsevier, vol. 24(11), pages 1703-1745, November.
  6. Kenneth Spong & Richard J. Sullivan & Robert DeYoung, 1995. "What makes a bank efficient? : a look at financial characteristics and management and ownership structure," Financial Industry Perspectives, Federal Reserve Bank of Kansas City, issue Dec, pages 1-19.
  7. Holthausen, Robert W. & Watts, Ross L., 2001. "The relevance of the value-relevance literature for financial accounting standard setting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 3-75, September.
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