The Impact of Banking Efficiency on Stock Returns
Peni, Emilia (2007)
Kuvaus
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Tiivistelmä
The Nordic banking sector has gone through major changes during the past two dec-ades. The most significant changes have been internalization, technological develop-ment, and changes in the legislation. The objective of this thesis is to investigate how banks’ efficiency has developed during and after the changes in the market, and whether changes efficiency figures have an impact on stock returns or not.
The data used are gathered from ten-year period including years 1996–2005, and cover-ing the Nordic countries Denmark, Finland, Norway and Sweden. Data Envelopment Analysis method is used in this study. Two efficiency figures are calculated for each bank, one measuring banking service efficiency (BSE), i.e. it measures producing bank-ing services, and the other measuring profit efficiency (PE), i.e. the ability to make profit.
Efficiency figures are compared country-specifically, but no statistically significant dif-ferences are found between the Nordic Countries. BSE figures are found to be high in all the countries during the sample period. PE figures have remained on a low level. Both BSE and PE levels have remained quite stable during the period investigated.
The correlations between efficiency figures and the stock returns are tested by using Pearson correlation coefficients, and both BSE and PE are found to correlate positively with stock returns at 0.01 level. The results are confirmed by using a regression model, which also shows that positive changes in efficiency figures lead to positive changes in stock returns and vice versa. Similar results are found also in previous studies concern-ing various other countries (see e.g. Kirkwood & Nahm 2006). The effects of the BSE and PE are also tested separately, and both are found to have a significant impact on stock returns, but the two efficiency measures together explain more of the changes in the stock returns than either of them alone.
The data used are gathered from ten-year period including years 1996–2005, and cover-ing the Nordic countries Denmark, Finland, Norway and Sweden. Data Envelopment Analysis method is used in this study. Two efficiency figures are calculated for each bank, one measuring banking service efficiency (BSE), i.e. it measures producing bank-ing services, and the other measuring profit efficiency (PE), i.e. the ability to make profit.
Efficiency figures are compared country-specifically, but no statistically significant dif-ferences are found between the Nordic Countries. BSE figures are found to be high in all the countries during the sample period. PE figures have remained on a low level. Both BSE and PE levels have remained quite stable during the period investigated.
The correlations between efficiency figures and the stock returns are tested by using Pearson correlation coefficients, and both BSE and PE are found to correlate positively with stock returns at 0.01 level. The results are confirmed by using a regression model, which also shows that positive changes in efficiency figures lead to positive changes in stock returns and vice versa. Similar results are found also in previous studies concern-ing various other countries (see e.g. Kirkwood & Nahm 2006). The effects of the BSE and PE are also tested separately, and both are found to have a significant impact on stock returns, but the two efficiency measures together explain more of the changes in the stock returns than either of them alone.