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An Analysis of Bank Efficiency and Stock Prices Using Data Envelopment and Stochastic Frontier Analysis Models

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  • Owen Jakata
  • Farikayi K. Mutasa

Abstract

This study investigated how stock prices and bank efficiency are linked to shareholder value creation. In this study two models Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA) are applied to estimate bank efficiency. A comparative efficiency analysis of the two models, DEA and SFA was done and it was concluded that the two methods are consistent in terms of the results that were obtained. The difference between DEA and SFA efficiency scores is due to the presence of measurement error in DEA model and due to the functional form of the SFA model. The two methods are used jointly to provide complementary information. The banks were ranked in terms of efficiency scores and CBZ and FBC were ranked number one and two respectively. In this study sensitivity analysis was used to determine which factors between bank efficiency, log Total Assets, ROE and ROA have the greatest influence on stock prices. The results show that bank efficiency has the greatest influence on stock prices as compared to the traditional accounting measures of performance. We conclude that any improvements in bank efficiency will result in improvements in shareholders value which is inferred in improved stock prices.

Suggested Citation

  • Owen Jakata & Farikayi K. Mutasa, 2014. "An Analysis of Bank Efficiency and Stock Prices Using Data Envelopment and Stochastic Frontier Analysis Models," International Journal of Management Sciences, Research Academy of Social Sciences, vol. 3(4), pages 280-292.
    • Handle: RePEc:rss:jnljms:v3i4p8
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