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Total Factor Productivity and Shareholder Returns in Banking

  • Franco Fiordelisi

    (University of Rome III)

  • Phil Molyneux

    ()

    (Bangor University)

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 UK 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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File URL: http://www.bangor.ac.uk/business/docs/BBSWP10005.pdf
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Paper provided by Bangor Business School, Prifysgol Bangor University (Cymru / Wales) in its series Working Papers with number 10005.

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Length: 35 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:bng:wpaper:10005
Contact details of provider: Postal: Gwynedd LL57 2DG
Phone: +44 (0) 1248 383648
Web page: http://www.bangor.ac.uk/business/research/

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  1. 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.
  2. 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.
  3. 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.
  4. 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.
  5. Finn Førsund & Nikias Sarafoglou, 2002. "On the Origins of Data Envelopment Analysis," Journal of Productivity Analysis, Springer, vol. 17(1), pages 23-40, January.
  6. 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.
  7. Sathye, Milind, 2001. "X-efficiency in Australian banking: An empirical investigation," Journal of Banking & Finance, Elsevier, vol. 25(3), pages 613-630, March.
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