Stock Performance, Corporate Governance, and Efficiency of China and Taiwan Banks: Is there a Relationship?

Abstract

This article examines whether the efficiency and ownership structure of banks is related to their stock performance in China and Taiwan. The DEA and DFA estimated the efficiency scores to be 0.3229 and 0.5048, respectively. The mean efficiency from the DFA method is more than the cost efficiency derived from the DEA. Is there a relationship? This article finds that banks have a greater efficiency then is directly reflected in enhanced expectations for the performance of the banks in the stock market, and the DFA efficiency estimates have a more valuable function reflected in the stock return when compared with the DEA efficiency estimates. This suggests that an X-efficiency score is a better indicatory index than the DEA model and traditional financial ratios for explaining stock returns.