Efficiency And Cost Analysis
The objective of banking companies is to have more efficient and effective utilization of resources where they can get maximum profits with lowest cost. Efficiency is a level of performance that describes the process of utilizing all resources production at lowest measure to produce a large sum of finished goods or services. The concept of efficiency is comparing the inputs and outputs where the resources that used to be goods or services are input; meanwhile the results from all resources that have been used including time and energy are called output. Banking companies should provide goods and services more efficiently by focusing more attention on controlling the cost. Cost control must be the main strategy of banking companies and that …show more content…
Etlivia (2014) employs the Data Envelopment Approach (DEA) to investigates the cost X-efficiency in the Indonesia listed banking sector over the period of 2004 to 2011, and identify 2% only can be explained by the cost efficiency where the value of cost efficiency will not result in a change of stock performance by using abnormal return. Input variables were selected are deposit, labor and capital while output variables are loan and investment. Shareholders tend to observe the company’s profits than the cost of the company.
Aftab, Ahamad, Ullah and Sheikh (2011) applies the Data Envelopment Approach (DEA) to examine the impact of bank efficiency on share performance in Pakistan from 2003 to 2007. However, the results show that bank efficiency is positive and significant link exists between change in annual bank efficiency and share performance by using Cumulative Annual Stock Returns (SASR) to calculate share performance and Linear Regression to analyze relationship between bank efficiency and stock performance. They estimates efficiency scores by taking operating expenses and interest expenses, as inputs while net profit as
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The findings show that there is positive and robust relationship between profit efficiency changes on stock returns. Besides that, profit efficiency better explains bank stock returns compared to traditional accounting profits measures (ROE). However, no evidence that cost efficiency changes reflected in stock returns. They used cost of borrowed funds and cost of non-borrowed funds as inputs and loans, other earning assets and non-interest income as
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