Super-efficiency and Stock Market Valuation: Evidence from Listed Banks in China (2006 to 2023)

TL;DR

This paper examines how bank efficiency, measured by a novel super-efficiency DEA model considering non-performing loans, influences stock market valuation in Chinese listed banks from 2006 to 2023.

Contribution

It introduces a new super-efficiency DEA model that incorporates non-performing loans as an undesired output, providing more accurate insights into bank valuation.

Findings

Super-efficiency has a stronger impact on stock valuation than ROA.

Decreased ownership concentration improves bank valuation.

Interest rate liberalization negatively affects bank valuation.

Abstract

This study investigates the relationship between bank efficiency and stock market valuation using an unbalanced panel dataset of 42 listed banks in China from 2006 to 2023. We employ a non-radial and non-oriented slack based super-efficiency Data Envelopment Analysis (Super-SBM-UND-VRS based DEA) model, which treats Non-Performing Loans (NPLs) as an undesired output. Our results show that the relationship between super-efficiency and stock market valuation is stronger than that between Return on Asset (ROA) and stock market performance, as measured by Tobin's Q. Notably, the Super-SBM-UND-VRS model yields novel results compared to other efficiency methods, such as the Stochastic Frontier Analysis (SFA) approach and traditional DEA models. Furthermore, our results suggest that bank evaluations benefit from decreased ownership concentration, whereas interest rate liberalization has the opposite effect.