Does Bank Efficiency Matter? Market Value Relevance of Bank Efficiency in Australia

32 Pages Posted: 15 Oct 2010

See all articles by Abul Shamsuddin

Abul Shamsuddin

University of Newcastle (Australia) - Newcastle Business School

Dong Xiang

Qilu University of Technology

Date Written: October 12, 2010

Abstract

The stochastic frontier analysis is employed to investigate efficiency of publicly listed Australian banks over the period 1985-2008. The results suggest that technical, cost and profit efficiency of Australian banks have improved over our sample span. Large banks have attained a higher level of cost efficiency but lower level of technical efficiency compared to small banks. No significant difference between the two groups is found in terms of profit efficiency. A pooled regression of bank stock return on bank efficiency suggests that an improvement in technical, cost or profit efficiency contributes to the market value of a bank. Thus, the shareholder wealth maximization goal is aligned with the goal of maximizing bank efficiency in the Australian context.

Keywords: Bank efficiency, SFA analysis, Distance functions, Market model

JEL Classification: D61, G21, G34

Suggested Citation

Shamsuddin, Abul and Xiang, Dong, Does Bank Efficiency Matter? Market Value Relevance of Bank Efficiency in Australia (October 12, 2010). 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: https://ssrn.com/abstract=1460378 or http://dx.doi.org/10.2139/ssrn.1460378

Abul Shamsuddin

University of Newcastle (Australia) - Newcastle Business School ( email )

City Campus East – 231
Callaghan, NSW 2308
Australia

Dong Xiang (Contact Author)

Qilu University of Technology ( email )

58 Jiefang E Rd
Jinan, Shandong 250353
China

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