Chinese Listed Banks Efficiency Estimates And Its Application

Nowadays in the domestic stock market Chinese listed banks are becomingincreasingly important in terms of their asset size, profitability per share, the ability toinfluence the market, or from the perspective of future development. As arepresentative of the bank’s comprehensive competitiveness index, Efficiency reflectsthe fundamentals of the listed banks which may be used as an important reference formarket investors to understand the fundamentals of banking stocks. Therefore how toevaluate bank efficiency has become a research focus. The stock price in the marketreflects investors’ expectations for the stock’s future development and the formation ofexpectations is based on the analysis and judgment of the fundamentals of individualstocks. Since efficiency is a comprehensive reflection of listed bank fundamentals, therelationship between the two has drawn research attention.This paper reviews the shortcomings of primary literatures in recent years aboutthe input-output indicator selection, such as the duplication and omissions ofindicators, statistical bias of the capital price’s corresponding items in the financialstatements, etc. According to the intermediation approach, this paper establishes twosets of input-output indicator from the perspective of bank’s business/balance ofpayments to calculate efficiency and selects items corresponding indicator in thefinancial statements. The empirical study using recent6periods’ data of all16Chinese listed banks shows that the DEA efficiencies evaluated by the two sets ofinput-output indicator are mostly consistent. Panel data models are set to study therelationship between bank efficiency and stock price. The results indicate that bankefficiency can be an antecedent variable for stock price.