The efficiency of banks and stock performance: Evidence from Saudi Arabia

Abstract

The aim of this study is to extend the literature by extensively investigating the efficiency of banks in Saudi Arabia and examining its relationship with stock performance through relying on six measures of efficiency (three price efficiencies and three technical efficiencies). This study employs the data envelopment analysis (DEA) on all listed Saudi commercial banks over the period 2006-2018 ensuring the robustness of the results, and the multiple-regression analysis method is used to empirically test the impact of the efficiency changes on bank stock returns. The results indicate that Saudi banks are more technically efficient, and their price efficiencies are more volatile. Furthermore, changes in bank efficiency are positively related to stock performance; however, these positive relationships are only statistically significant with the changes in profit and scale efficiency measures implying that investors pay much attention to the improvement in bank profitability and future dividends.

Determinants of Banking Operational Efficiency and the Relationship Between the Factors to Market Price: Evidence from Indonesia

“…A bank's disclosure of financial information can affect the willingness of investors to invest (Zogning, F. 2022). Banking efficiency is a metric that indicates how to increase a firm's value and the scale efficiency measures implying that investors pay much attention to the improvement in bank profitability and future dividends (Alsharif, M., 2021). It must be considerable for a corporation when it faces the uncertainty market (Gabriel, O et al, 2019).…”

Short- and long-term impacts of merger activities in the banking industry: evidence from an emerging market

“…1. For more information on the structure and development of the Saudi banking sector over the past two decades, please see Alsharif (2021b).…”

Landscape of Research on the Efficiency Profiles of Islamic Banks using DEA: Survey, Classification and Critical Analysis of the Literature

“…Several types of efficiencies were investigated; namely, overall technical efficiency (OTE), as estimated by CCR models (e.g., Yudistira, 2004;Johnes et al, 2009;Kaffash et al, 2018;Wanke et al, 2019;Alsharif, 2021), pure technical efficiency (PTE), as estimated by BCC models (e.g., Grigorian and Manole, 2005;Hassan, 2006;Sufian and Habibullah, 2010;Kaffash et al, 2020), scale efficiency (SE), as measured by the ratio of OTE to PTE (e.g., Hassan, 2006;Mobarek and Kalonov, 2014;Belanès et al, 2015;Shahwan and Habib, 2021), cost efficiency (CE), as estimated by cost-based objective DEA models (e.g., Hassan, 2006;Mokhtar et al, 2007;Johnes et al, 2014;Anagnostopoulos et al, 2020), revenue efficiency (RE), as estimated by revenue-based objective DEA models (e.g., Hassan, 2006;Al-Khasawneh et al, 2012;Kamarudin et al, 2014;Alsharif, 2021), profit efficiency (PE), as estimated by profit-based objective DEA models (e.g., Hassan, 2006;Sufian et al, 2013;Alqahtani et al, 2017), and allocative efficiency (AE), as measured by the ratio of CE to OTE (e.g., Ahmad and Luo, 2010;Batir et al, 2017). The distribution of the 80 DEA studies on Islamic banking covering each of these efficiency measures is depicted in Figure (b) in Appendix A, which suggest that these studies on Islamic banking are well diversified in that they respond to the informational needs of a variety of stakeholders including managers, investors, and regulators.…”

“…As to the categories of bank features, the efficiency scores have been analysed based on (1) the ownership type of the bank; e.g., domestic vs. foreign, state-owned vs. privately-owned (e.g., Alqahtani et al, 2017;Anagnostopoulos et al, 2020), (2) the size of the bank; i.e., small vs. large/big (e.g., Yudistira, 2004;Alsharif, 2021), (3) the age of https://doi.org/10.55802/IJB.028(3).004 the bank; i.e., old vs. new (e.g., Hassan et al, 2009), (4) the listing status of the bank; i.e., quoted vs. unquoted banks (e.g., Johnes et al, 2014), and (5) whether a bank was involved in a mergers and acquisitions (M&A) activity; i.e., merged vs. unmerged banks (Wanke et al, 2019).…”