IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Efficiency and stock performance of EU banks: Is there a relationship?

  • Liadaki, Aggeliki
  • Gaganis, Chrysovalantis
Registered author(s):

    The purpose of this paper is to examine whether the stock performance of EU listed banks is related to their efficiency. Our sample consists of 171 banks operating in 15 EU markets over the period 2002-2006. First, we use stochastic frontier analysis to estimate the cost and profit efficiency of banks, while controlling for environmental factors. Then, we investigate if changes in profit and cost efficiency are reflected in changes in stock prices. Our results indicate that the change in profit efficiency has a positive and significant impact on stocks prices; however, there is no relationship between changes in cost efficiency and stock returns.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.sciencedirect.com/science/article/pii/S0305-0483(09)00039-5
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal Omega.

    Volume (Year): 38 (2010)
    Issue (Month): 5 (October)
    Pages: 254-259

    as
    in new window

    Handle: RePEc:eee:jomega:v:38:y:2010:i:5:p:254-259
    Contact details of provider: Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/375/description#description

    Order Information: Postal: http://www.elsevier.com/wps/find/supportfaq.cws_home/regional
    Web: https://shop.elsevier.com/order?id=375&ref=375_01_ooc_1&version=01

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
    2. Belarmino Adenso-Díaz & Fernando Gascón, . "Linking and Weighting Efficiency Estimates with Stock Performance in Banking Firms," Center for Financial Institutions Working Papers 97-21, Wharton School Center for Financial Institutions, University of Pennsylvania.
    3. Chan, Wesley S. & Frankel, Richard & Kothari, S.P., 2004. "Testing behavioral finance theories using trends and consistency in financial performance," Journal of Accounting and Economics, Elsevier, vol. 38(1), pages 3-50, December.
    4. Berger, Allen N. & Hasan, Iftekhar & Zhou, Mingming, 2009. "Bank ownership and efficiency in China: What will happen in the world's largest nation?," Journal of Banking & Finance, Elsevier, vol. 33(1), pages 113-130, January.
    5. Dietsch, Michel & Lozano-Vivas, Ana, 2000. "How the environment determines banking efficiency: A comparison between French and Spanish industries," Journal of Banking & Finance, Elsevier, vol. 24(6), pages 985-1004, June.
    6. J.W.B. Bos & J.W. Kolari, 2003. "Large Bank Efficiency in Europe and the United States: Are There Economic Motivations for Geographic Expansion in Financial Services?," Research Series Supervision (discontinued) 61, Netherlands Central Bank, Directorate Supervision.
    7. Brissimis, Sophocles N. & Delis, Manthos D. & Papanikolaou, Nikolaos I., 2008. "Exploring the nexus between banking sector reform and performance: Evidence from newly acceded EU countries," Journal of Banking & Finance, Elsevier, vol. 32(12), pages 2674-2683, December.
    8. 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.
    9. Fotios Pasiouras, 2008. "International evidence on the impact of regulations and supervision on banks’ technical efficiency: an application of two-stage data envelopment analysis," Review of Quantitative Finance and Accounting, Springer, vol. 30(2), pages 187-223, February.
    10. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-32.
    11. Joshua Kirkwood & Daehoon Nahm, 2005. "Australian Banking Efficiency and its Relation to Stock Returns," Research Papers 0508, Macquarie University, Department of Economics.
    12. Yener Altunbas & Santiago Carbo & Edward P.M. Gardener & Philip Molyneux, 2007. "Examining the Relationships between Capital, Risk and Efficiency in European Banking," European Financial Management, European Financial Management Association, vol. 13(1), pages 49-70.
    13. Ana Lozano-Vivas & Jesús Pastor & José Pastor, 2002. "An Efficiency Comparison of European Banking Systems Operating under Different Environmental Conditions," Journal of Productivity Analysis, Springer, vol. 18(1), pages 59-77, July.
    14. Allen N. Berger & David B. Humphrey, 1992. "Megamergers in banking and the use of cost efficiency as an antitrust defense," Finance and Economics Discussion Series 203, Board of Governors of the Federal Reserve System (U.S.).
    15. Avkiran, Necmi K., 2009. "Removing the impact of environment with units-invariant efficient frontier analysis: An illustrative case study with intertemporal panel data," Omega, Elsevier, vol. 37(3), pages 535-544, June.
    16. Kyriaki Kosmidou, 2008. "The determinants of banks' profits in Greece during the period of EU financial integration," Managerial Finance, Emerald Group Publishing, vol. 34(3), pages 146-159.
    17. Thanassoulis, E. & Boussofiane, A. & Dyson, R. G., 1996. "A comparison of data envelopment analysis and ratio analysis as tools for performance assessment," Omega, Elsevier, vol. 24(3), pages 229-244, June.
    18. Abhiman Das & Subhash C. Ray & Ashok Nag, 2005. "Labor-Use Efficiency in Indian Banking: A Branch Level Analysis," Working papers 2005-04, University of Connecticut, Department of Economics.
    19. Maudos, Joaquin & Pastor, Jose M. & Perez, Francisco & Quesada, Javier, 2002. "Cost and profit efficiency in European banks," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 12(1), pages 33-58, February.
    20. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-44, June.
    21. Allen N. Berger & David B. Humphrey, 1990. "The dominance of inefficiencies over scale and product mix economies in banking," Finance and Economics Discussion Series 107, Board of Governors of the Federal Reserve System (U.S.).
    22. Chen, Peter & Zhang, Guochang, 2007. "How do accounting variables explain stock price movements? Theory and evidence," Journal of Accounting and Economics, Elsevier, vol. 43(2-3), pages 219-244, July.
    23. Fries, Steven & Taci, Anita, 2005. "Cost efficiency of banks in transition: Evidence from 289 banks in 15 post-communist countries," Journal of Banking & Finance, Elsevier, vol. 29(1), pages 55-81, January.
    24. Robert A. Eisenbeis & Gary D. Ferrier & Simon H. Kwan, 1999. "The informativeness of stochastic frontier and programming frontier efficiency scores: Cost efficiency and other measures of bank holding company performance," FRB Atlanta Working Paper 99-23, Federal Reserve Bank of Atlanta.
    25. Vivas, Ana Lozano, 1997. "Profit efficiency for Spanish savings banks," European Journal of Operational Research, Elsevier, vol. 98(2), pages 381-394, April.
    26. Kothari, S. P., 2001. "Capital markets research in accounting," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 105-231, September.
    27. Elena Beccalli & Barbara Casu & Claudia Girardone, 2006. "Efficiency and Stock Performance in European Banking," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(1-2), pages 245-262.
    28. Camanho, A.S. & Dyson, R.G., 2008. "A generalisation of the Farrell cost efficiency measure applicable to non-fully competitive settings," Omega, Elsevier, vol. 36(1), pages 147-162, February.
    29. Ball, Ray & Kothari, S. P. & Robin, Ashok, 2000. "The effect of international institutional factors on properties of accounting earnings," Journal of Accounting and Economics, Elsevier, vol. 29(1), pages 1-51, February.
    30. Pasiouras, Fotios & Kosmidou, Kyriaki, 2007. "Factors influencing the profitability of domestic and foreign commercial banks in the European Union," Research in International Business and Finance, Elsevier, vol. 21(2), pages 222-237, June.
    31. Laurent Weill, 2004. "Measuring Cost Efficiency in European Banking: A Comparison of Frontier Techniques," Journal of Productivity Analysis, Springer, vol. 21(2), pages 133-152, March.
    32. Chu, Sing Fat & Lim, Guan Hua, 1998. "Share performance and profit efficiency of banks in an oligopolistic market: evidence from Singapore," Journal of Multinational Financial Management, Elsevier, vol. 8(2-3), pages 155-168, September.
    33. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    34. Fotios Pasiouras & Aggeliki Liadaki & Constantin Zopounidis, 2008. "Bank efficiency and share performance: evidence from Greece," Applied Financial Economics, Taylor & Francis Journals, vol. 18(14), pages 1121-1130.
    35. Leigh Drake, 2001. "Efficiency and productivity change in UK banking," Applied Financial Economics, Taylor & Francis Journals, vol. 11(5), pages 557-571.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:jomega:v:38:y:2010:i:5:p:254-259. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.