This paper analyses the relationship between efficiency and shareholder return (using an Economic Value-Added or EVA measure) in the French, German, Italian and UK banking systems over the period of 1999–2002. Various hypotheses regarding the relationship between bank efficiency and shareholder value are tested. We find that profit efficiency better explains the variations in shareholder value than cost efficiency. Stochastic Frontier (SF) cost efficiency estimates also better explain the variations in shareholder value creation than those derived from nonparametric Data Development Analysis (DEA) estimates. While cost and profit efficiency are found to be positively related to shareholder value, the bank ownership differences across countries are found to be much more important in explaining shareholder value than bank efficiency (however measured)
Efficiency and shareholder return in banking
FIORDELISI, FRANCO
2008
Abstract
This paper analyses the relationship between efficiency and shareholder return (using an Economic Value-Added or EVA measure) in the French, German, Italian and UK banking systems over the period of 1999–2002. Various hypotheses regarding the relationship between bank efficiency and shareholder value are tested. We find that profit efficiency better explains the variations in shareholder value than cost efficiency. Stochastic Frontier (SF) cost efficiency estimates also better explain the variations in shareholder value creation than those derived from nonparametric Data Development Analysis (DEA) estimates. While cost and profit efficiency are found to be positively related to shareholder value, the bank ownership differences across countries are found to be much more important in explaining shareholder value than bank efficiency (however measured)
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