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Australian Banking Efficiency and its Relation to Stock Returns

Joshua Kirkwood and Daehoon Nahm ()
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Joshua Kirkwood: Reserve Bank of Australia

No 508, Research Papers from Macquarie University, Department of Economics

Abstract: This paper considers cost and profit efficiency for Australian banks between 1995 and 2002. Data Envelopment Analysis (DEA) is used to construct an efficient frontier for ten banks listed on the Australian Stock Exchange. Empirical results indicate the major banks have improved their cost and profit efficiency, while the regional banks have experienced little change in cost efficiency, and a decline in profit efficiency. This result provides interesting insights into the structure of the Australian banking industry. Malmquist indices indicate technological change is the dominant source of improvements in total factor productivity over the period. An attempt is made to relate the changes in efficiency to stock returns, using a method superior to that previously adopted. Results indicate that for our sample changes in firm efficiency are reflected in stock returns.

Keywords: DEA; Banks; Profit Efficiency; Cost Efficiency (search for similar items in EconPapers)
JEL-codes: G14 G21 D24 (search for similar items in EconPapers)
Pages: 26 pages.
Date: 2005-05
New Economics Papers: this item is included in nep-eff, nep-fin and nep-fmk
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http://www.econ.mq.edu.au/research/2005/Nahm_KWood_ABE_2.pdf First Version, 2005 (application/pdf)

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