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Keywords:
allocative effi ciency cost effi ciency Data Envelopment Analysis Du Pont analysis market value ratios technical effi ciency
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The infl uence of banks’ internal performance on market performance: a non-parametric approach
Abstract
The purpose of the study is to determine the degree to which banks’
market performance, as measured by market value ratios, is aff ected
by their internal performance. Annual fi nancial statement reports
were used to determine the internal and market performance of
listed banks on the JSE Limited over a ten-year period. The internal
performance measures used are the profi tability ratios in the Du
Pont analysis and two Data Envelopment Analysis (DEA) models to
estimate effi ciency. Income statement data were included as the
output of the fi rst model to determine banks’ operating effi ciency,
and balance sheet data were included as the output of the second
model to determine banks’ fi nance and investment effi ciency. The
study concluded that market value ratios correlate better with
profi tability ratios than the income statement output-based and
balance sheet output-based effi ciencies. This study is the fi rst to
compare two DEA models and profi tability ratios with market value
ratios. The value of the study is therefore that it indicates that
profi tability ratios should be used as a proxy for market value ratios
rather than effi ciency measures that focus separately on income
statement data and balance sheet data.
market performance, as measured by market value ratios, is aff ected
by their internal performance. Annual fi nancial statement reports
were used to determine the internal and market performance of
listed banks on the JSE Limited over a ten-year period. The internal
performance measures used are the profi tability ratios in the Du
Pont analysis and two Data Envelopment Analysis (DEA) models to
estimate effi ciency. Income statement data were included as the
output of the fi rst model to determine banks’ operating effi ciency,
and balance sheet data were included as the output of the second
model to determine banks’ fi nance and investment effi ciency. The
study concluded that market value ratios correlate better with
profi tability ratios than the income statement output-based and
balance sheet output-based effi ciencies. This study is the fi rst to
compare two DEA models and profi tability ratios with market value
ratios. The value of the study is therefore that it indicates that
profi tability ratios should be used as a proxy for market value ratios
rather than effi ciency measures that focus separately on income
statement data and balance sheet data.
