How do Equity Investors Assess the Efficiency of Global Financial Institutions?

Michael S. Pagano

Finance Research Letters, 2022, vol. 49, issue C

Abstract: Using a production function approach, this study is the first to focus on the effect of operational inefficiency on the stock returns of large global financial firms. Inefficiency is inversely related to returns for systemically important firms and is robust to including asset pricing factors, firm-specific variables, and other controls. Further, this finding is robust to the inclusion of a firm's profitability and idiosyncratic risk. Thus, the inefficiency metric is not just an alternative way to measure a firm's profitability or risk. Instead, inefficiency can be an important additional factor to consider when evaluating a large financial firm's stock returns.

Keywords: Stock Returns, Large Financial Institutions; Efficiency; International Finance (search for similar items in EconPapers)
JEL-codes: G2 G21 G23 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:49:y:2022:i:c:s1544612322003671

DOI: 10.1016/j.frl.2022.103144

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