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

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 profitgenerating operations.

The effects of ownership change on bank performance and risk exposure: Evidence from indonesia

“…The results also indicate that foreign banks tend to underperform private banks but outperform SOBs, as shown by the sign and significance of the coefficients on FB and SOB in the PE rank regression as well as in the PE score regression. The finding that foreign banks trail private banks in terms of both cost and profit efficiency is broadly consistent with the results of Hadad et al (2011a).…”

“…The literature on the performance and risk of Indonesian banks reveals that SOBs tend to outperform foreign banks. Investigating Indonesian banks over the period-2009, Hadad et al (2011a examine the relationship between bank efficiency and stock market performance. Their study uses a Data Envelopment Analysis (DEA)-based approach and finds that foreign banks tend to be less efficient compared to their domestic counterparts Hadad et al (2011b).…”

How Does Ownership Affect Bank Performance?-The Case Of Indian Commercial Banks

“…To overcome such limitations, this study employs two models where model 1 is based on 'flow' concept, in which all variables are measured as amounts per a unit of time (during a year), and model 2 is based on the 'stock' concept, in which all variables are measured as amounts at a particular point in time (at the end of the financial year). The model 1 draws upon Drake, Hall, and Simper (2009), Hadad et al (2008), and Sathye (2003) and aligns with revenue/profit based efficiency initially proposed by Berger and Mester (1997). In © 2011 The Clute Institute contrast, model 2 draws upon Kirkwood and Nahm (2006 model A), Sathye (2001), and Sturm and Williams (2004) and relies on traditional cost efficiency concept.…”

The Nexus Between Underlying Dynamics of Bank Capital Buffer and Performance

“…[Insert Table 3 and Figure 2 and market performance has also been investigated (Beccalli et al 2006;Hadad et al 2011). In this paper, we derive cost efficiency from a stochastic frontier analysis (SFA).…”