The influence of bank's internal performance on market performance: A non-parametric approcah

Abstract

The purpose of the study is to determine the degree to which banks' market performance, as measured by market value ratios, is a? ected by their internal performance. Annual ? 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 pro? tability ratios in the Du Pont analysis and two Data Envelopment Analysis (DEA) models to estimate e? ciency. Income statement data were included as the output of the ? rst model to determine banks' operating e? ciency, and balance sheet data were included as the output of the second model to determine banks' ? nance and investment e? ciency. The study concluded that market value ratios correlate better with pro? tability ratios than the income statement output-based and balance sheet output-based e? ciencies. This study is the ? rst to compare two DEA models and pro? tability ratios with market value ratios. The value of the study is therefore that it indicates that pro? tability ratios should be used as a proxy for market value ratios rather than e? ciency measures that focus separately on income statement data and balance sheet data.