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

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  • Liadaki, Aggeliki
  • Gaganis, Chrysovalantis

Abstract

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.

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  • 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.
    • Handle: RePEc:eee:jomega:v:38:y:2010:i:5:p:254-259
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    2. Xiaoqing Maggie Fu & Yongjia Rebecca Lin & Philip Molyneux, 2015. "Bank Efficiency and Shareholder Value in Asia Pacific," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Bank Competition, Efficiency and Liquidity Creation in Asia Pacific, chapter 4, pages 72-95, Palgrave Macmillan.
    3. Joseph Kwadwo Tuffour & Kenneth Ofori-Boateng & Williams Ohemen, 2020. "Efficiency of Listed Banks Operations and Stock Price Movements," International Journal of Economics and Financial Issues, Econjournals, vol. 10(1), pages 219-227.
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    5. Francesco Aiello & Graziella Bonanno, 2018. "On The Sources Of Heterogeneity In Banking Efficiency Literature," Journal of Economic Surveys, Wiley Blackwell, vol. 32(1), pages 194-225, February.
    6. Francesco Aiello & Graziella Bonanno, 2016. "Efficiency in banking: a meta-regression analysis," International Review of Applied Economics, Taylor & Francis Journals, vol. 30(1), pages 112-149, January.
    7. Ghosh Saibal, 2013. "Funding Structure, Procyclicality and Lending: Evidence from GCC Banks," Review of Middle East Economics and Finance, De Gruyter, vol. 9(2), pages 241-270, August.
    8. Chrysovalantis Gaganis & Iftekhar Hasan & Fotios Pasiouras, 2013. "Efficiency and stock returns: evidence from the insurance industry," Journal of Productivity Analysis, Springer, vol. 40(3), pages 429-442, December.
    9. Alshammari, Ahmad Alrazni & Alhabshi, Syed Musa & Saiti, Buerhan, 2019. "The impact of oil prices and the financial market on cost efficiency in the insurance and Takaful sectors: Evidence from a stochastic frontier analysis," Economic Systems, Elsevier, vol. 43(3).
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    19. Chang-Sheng Liao, 2019. "Stock Performance, Corporate Governance, and Efficiency of China and Taiwan Banks: Is there a Relationship?," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(2), pages 176-190, February.
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