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How do Equity Investors Assess the Efficiency of Global Financial Institutions?

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  • Pagano, Michael S.

Abstract

Using a production function approach, this study is the first to focus on the effect of operational inefficiency on the stock returns of large global financial firms. Inefficiency is inversely related to returns for systemically important firms and is robust to including asset pricing factors, firm-specific variables, and other controls. Further, this finding is robust to the inclusion of a firm's profitability and idiosyncratic risk. Thus, the inefficiency metric is not just an alternative way to measure a firm's profitability or risk. Instead, inefficiency can be an important additional factor to consider when evaluating a large financial firm's stock returns.

Suggested Citation

  • Pagano, Michael S., 2022. "How do Equity Investors Assess the Efficiency of Global Financial Institutions?," Finance Research Letters, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:finlet:v:49:y:2022:i:c:s1544612322003671
    DOI: 10.1016/j.frl.2022.103144
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    References listed on IDEAS

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    More about this item

    Keywords

    Stock Returns; Large Financial Institutions; Efficiency; International Finance;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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