Efficiency and stock performance of EU banks: Is there a relationship? |
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| Authors: | Aggeliki Liadaki Chrysovalantis Gaganis |
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| Institution: | 1. Financial Engineering Laboratory, Department of Production Engineering and Management, Technical University of Crete, University Campus, Chania 73100, Greece;2. Visiting Research Fellow, School of Management, University of Bath, UK;3. Department of Economics, University of Crete, Greece |
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| Abstract: | The purpose of this paper is to examine whether the stock performance of EU listed banks is related to their efficiency. Our sample consists of 171 banks operating in 15 EU markets over the period 2002–2006. First, we use stochastic frontier analysis to estimate the cost and profit efficiency of banks, while controlling for environmental factors. Then, we investigate if changes in profit and cost efficiency are reflected in changes in stock prices. Our results indicate that the change in profit efficiency has a positive and significant impact on stocks prices; however, there is no relationship between changes in cost efficiency and stock returns. |
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| Keywords: | European banking SFA Efficiency Stock returns |
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