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

International Journal of Computational Economics and Econometrics, Vol. 1, No. 1, 2009

Posted: 12 Dec 2009

See all articles by Fadzlan Sufian

Fadzlan Sufian

affiliation not provided to SSRN

Muhamed Zulkhibri

Central Bank of Malaysia; Islamic Development Bank - Islamic Research and Training Institute; University of Nottingham

Date Written: December 9, 2009

Abstract

This paper examines the relationship between the efficiency of China banks 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 the data envelopment analysis (DEA) window analysis method to estimate the efficiency of each bank. Finally, we regress the annual share price returns on the change in efficiency, while controlling for other bank specific traits. The empirical findings suggest that large Chinese 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 Chinese 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.

Keywords: bank efficiency, share prices, data envelopment analysis, DEA window analysis, China

JEL Classification: G21, D24

Suggested Citation

Sufian, Fadzlan and Zulkhibri, Muhamed, Bank Efficiency and Share Prices in China: Empirical Evidence from a Three-Stage Banking Model (December 9, 2009). International Journal of Computational Economics and Econometrics, Vol. 1, No. 1, 2009, Available at SSRN: https://ssrn.com/abstract=1521302

Fadzlan Sufian

affiliation not provided to SSRN ( email )

Muhamed Zulkhibri (Contact Author)

Central Bank of Malaysia ( email )

Jalan Dato' Onn
P.O. Box 10922
Kuala Lumpur, 50929
Malaysia

Islamic Development Bank - Islamic Research and Training Institute ( email )

P.O. Box. 9201
Jeddah, 21413
Saudi Arabia

University of Nottingham ( email )

Department of Economics
University Park
Nottingham, NG7 2RD
United Kingdom

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