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Bank Efficiency and Share Prices in China: Empirical Evidence from a Three-Stage Banking Model

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  • Abdul Majid, Muhamed Zulkhibri
  • Sufian, Fadzlan

Abstract

This paper examines for the first time the relationship between China banks’ efficiency and its share price performance. Our analysis consists of three parts. First, we calculate the annual share price returns of the banks for each year between 1997 and 2006. Then we employ Data Envelopment Analysis (DEA) Window Analysis method, first proposed by Charnes et al. (1985) to estimate the efficiency of the banks. Finally, we estimate the annual share price returns over the change in efficiency, while controlling for other bank specific traits. The empirical findings suggest that large China banks have exhibited higher technical and pure technical efficiency levels compared to their small and medium sized bank counterparts, while the medium sized banks have exhibited higher scale efficiency. The relationship between China banks’ efficiency and share price performance suggest that bank efficiency estimates derived from the DEA Window Analysis method contributes significant information towards share price returns beyond that provided by financial information.

Suggested Citation

  • Abdul Majid, Muhamed Zulkhibri & Sufian, Fadzlan, 2008. "Bank Efficiency and Share Prices in China: Empirical Evidence from a Three-Stage Banking Model," MPRA Paper 12120, University Library of Munich, Germany, revised 01 Apr 2008.
    • Handle: RePEc:pra:mprapa:12120
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    Cited by:

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    2. Dipasha Sharma, 2018. "Stock Market Performance and Efficiency of Banks in a Developing Economy: Evidence from the Indian Banking Sector," IIM Kozhikode Society & Management Review, , vol. 7(2), pages 178-193, July.
    3. Sabri Boubaker & T.D.Q. Le & R. Manita & T. Ngo, 2023. "The Trade-off Frontier for ESG and Sharpe Ratio: A Bootstrapped Double-Frontier Data Envelopment Analysis," Post-Print hal-04434028, HAL.
    4. Abhilash Nair & Vinod R, 2015. "Determinants of allocative, scale and scope efficiencies of Indian banks," Working papers 177, Indian Institute of Management Kozhikode.
    5. 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.
    6. Tan, Yong & Anchor, John, 2017. "The impacts of risk-taking behaviour and competition on technical efficiency: Evidence from the Chinese banking industry," Research in International Business and Finance, Elsevier, vol. 41(C), pages 90-104.
    7. Chen, Xiang & Wang, Yujia & Wu, Xin, 2022. "Exploring the source of the financial performance in Chinese banks: A risk-adjusted decomposition approach," International Review of Financial Analysis, Elsevier, vol. 80(C).
    8. Norma Wijayanti & Anton A. Setyawan & M.Farid Wajdi & Imronudin, 2022. "Performance Measurement of Islamic Bank in Indonesia, is Merger Necessary?," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 11(1), pages 199-206, January.

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    More about this item

    Keywords

    Bank Efficiency; Share Prices; DEA Window Analysis; China;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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