Efficiency and Stock Performance in European Banking

17 Pages Posted: 24 Apr 2003

See all articles by Elena Beccalli

Elena Beccalli

Catholic University of the Sacred Heart of Milan - Institute of Economy and Finance

Barbara Casu

City University London - The Business School

Claudia Girardone

Essex Business School - University of Essex

Abstract

During the past decades, competitive pressures have increasingly driven banks to change the strategic focus on generating returns to shareholders. All things being equal, cost efficient banks should be more profitable and therefore generate greater shareholder returns. The purpose of this paper is to contribute further evidence on bank efficiency by defining alternative efficiency measures and investigating the link between such measures and the market performance of financial institutions. Employing Data Envelopment Analysis (DEA) and Stochastic Frontier Approach (SFA) we estimate measures of bank cost efficiency for a sample of European banks listed in the year 2000. The results seem to indicate that percentage change in stock prices reflect percentage change in cost efficiency, particularly those derived from DEA. This suggests that stocks of cost efficient banks tend to outperform their inefficient counterparts.

Keywords: Efficiency, Market performance, DEA, SFA, European Banking

JEL Classification: G21

Suggested Citation

Beccalli, Elena and Casu, Barbara and Girardone, Claudia, Efficiency and Stock Performance in European Banking. Available at SSRN: https://ssrn.com/abstract=391668 or http://dx.doi.org/10.2139/ssrn.391668

Elena Beccalli

Catholic University of the Sacred Heart of Milan - Institute of Economy and Finance ( email )

Via Necchi 5
20123 Milano
Italy

Barbara Casu

City University London - The Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Claudia Girardone (Contact Author)

Essex Business School - University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom
+44 1206874156 (Phone)
+44 1206873429 (Fax)

HOME PAGE: http://www.essex.ac.uk/ebs/staff/profile.aspx?ID=1045

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