Title: Efficiency and shareholder return in banking

Authors: Franco Fiordelisi

Addresses: Dipartimento di Scienze Aziendali ed Economico Giuridiche, Universita degli studi di Roma Tre, Via S. D'Amico 77, 00145 Rome, Italy

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).

Keywords: shareholder value; cost efficiency; profit efficiency; stochastic frontier analysis; data envelopment analysis; DEA; economic value added; EVA; shareholder return; France; Germany; Italy; UK; United Kingdom; banking systems; bank efficiency.

DOI: 10.1504/IJBAAF.2008.020644

International Journal of Banking, Accounting and Finance, 2008 Vol.1 No.2, pp.114 - 132

Available online: 07 Oct 2008 *

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