The infl uence of banks internal performance on market performance: a non-parametric approach

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