Determining the factors of bank performance with a focus on risk and technical efficiency

Abstract

Unlike in the non-financial sector, the measurement of bank performance has to incorporate the multi task nature of banking and reflect the requirements of various stakeholders besides shareholders such as the regulators and the depositors who are equally important. To incorporate these features we measure a bank's technical efficiency, and various types of risk exposure and examine the impact of these measures on market to book values. We use panel regression to analyze the relationship of bank criteria with market to book values and our results show technical efficiency is priced in the market as well as the risk measures such as short-term repricing gap, adjusted return on solvency as well as the adjusted income cost ratio. We also find the takeovers to have a positive impact on market to book value.