Bank efficiency and share prices in China: empirical evidence from a three-stage banking model

Fadzlan Sufian, Muhamed Zulkhibri Abdul Majid
2009 International Journal of Computational Economics and Econometrics  
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,
more » ... 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. JEL Classification: G21
doi:10.1504/ijcee.2009.029151 fatcat:2o3rmqebv5cajolvwlxe3fgl7i