Assessing the Nexus Between Bank Efficiency and Stock Returns: Evidence from Indian Nationalized Banks (International Journal of Advanced Research)

Summary

• Three banks—Bank of Maharashtra, Punjab and Sind Bank, and State Bank of India—achieved full efficiency across all 10 years under CRSTE, VRSTE, and SE metrics.p.6
• Canara Bank recorded the weakest operational performance, achieving efficiency in only 2 years under CRSTE and VRSTE, and 1 year under SE.p.6
• In 2022, overall efficiency reached its lowest level, with only 5 banks operating efficiently under CRSTE and SE, and 6 under VRSTE.p.7
• Regression results show that technical efficiency (CRSTE) has a negative coefficient of -2.255 with a p-value of 0.18, failing to show a statistically significant effect on stock returns.p.8
• Bank profitability measured by Return on Assets (ROA) is highly significant across all regression models with p-values of 0.000, indicating investor focus on profits rather than operational efficiency.p.8

Key insights

1. Efficiency metrics derived from Data Envelopment Analysis (DEA) do not exert a statistically significant impact on the stock returns of Indian nationalized banks.p.8
2. Return on Assets (ROA) consistently and significantly explains stock prices across all regression specifications with p-values of 0.000.p.8
3. Pure technical efficiency (VRSTE) generally exceeds overall technical efficiency (CRSTE), demonstrating that scale inefficiencies drive overall operational drag.p.6
4. Bank of Maharashtra, Punjab and Sind Bank, and State Bank of India were the only three public sector banks to achieve full efficiency across all ten sample years.p.6
5. The panel regression models explain around 54% of the variance in stock performance, recording adjusted R² values between 0.535 and 0.54.p.8