The relationship between economic value added and data envelopment analysis based on financial statements: Emperical evidence of South African listed banks

Abstract

The purpose of the study is to estimate the relationship between bank efficiency and the creation of shareholders' value. Annual financial statement reports are used to estimate technical, allocative and cost efficiency with the aid of two Data Envelopment Analysis (DEA) models (one mainly income statement-based and the other mainly balance sheet-based) for five banks listed on the Johannesburg Stock Exhange (JSE) over a 10-year period. The creation of shareholders' value is estimated by using Economic Value Added (EVA). The study found that there appears to be a weak relationship between EVA values and the efficiency estimates of the two DEA models. In addition, neither of the two DEA models is significantly superior as a driver for shareholders' value. Further research is needed to estimate why the efficient operation of a bank does not necessarily contribute to the creation of shareholders' value. Researchers may consider including different variables in their DEA model(s) or use variables with time lags.