Banking Efficiency and Stock Market Performance: An Analysis of Listed Indonesian Banks

Muliaman D. Hadad, Maximilian Hall, Wimboh Santoso, Ricky Satria, Karligash Kenjegalieva () and Richard Simper ()
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Muliaman D. Hadad: Bank Indonesia, Jakarta, Indonesia
Wimboh Santoso: Bank Indonesia, Jakarta, Indonesia
Ricky Satria: Bank Indonesia, Jakarta, Indonesia

Discussion Paper Series from Department of Economics, Loughborough University

Abstract: This paper examines the monthly efficiency and productivity of listed Indonesian banks and their market performance through the prism of two modelling techniques, efficiency and super-efficiency, over the period January 2006 to July 2007. Within this research strategy we employ Tone’s (2001) non-parametric, Slacks-Based Model (SBM) and Tone’s (2002) super-efficiency SBM combining them with recent bootstrapping techniques, namely the non-parametric truncated regression analysis suggested by Simar and Wilson (2007). In the case of the SBM efficiency scores, the Simar and Wilson methodology was adapted to two truncations, whereas in the super-efficiency framework the original technique was utilised. As suggested by neo-classical theory, we find that the stock market values banks in accordance with their performance. Moreover, it is found that the JCI index of the Indonesian Stock Exchange is positively related to bank efficiency. Another interesting finding is that the coefficient for the share of foreign ownership is negative and statistically significant in the super-efficiency modelling. This suggests that Indonesian banks with foreign ownership tend to be less efficient than their domestic counterparts. Finally, Malmquist productivity results suggest that, over the study’s horizon, the sample banks displayed volatile productivity patterns in their profit-generating operations.

Keywords: Indonesian Banking; Emerging Markets; Productivity; Efficiency. (search for similar items in EconPapers)
JEL-codes: C23 C52 G21 (search for similar items in EconPapers)
Date: 2008-08, Revised 2008-08
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-eff and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Banking efficiency and stock market performance: an analysis of listed Indonesian banks (2011)
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