Original Research

The influence of efficiency estimates on the financial ratios of South African listed banks

Merwe Oberholzer, Gert van der Westhuizen
Journal of Economic and Financial Sciences | Vol 3, No 2 | a339 | DOI: https://doi.org/10.4102/jef.v3i2.339 | © 2018 Merwe Oberholzer, Gert van der Westhuizen | This work is licensed under CC Attribution 4.0
Submitted: 29 June 2018 | Published: 31 October 2009

About the author(s)

Merwe Oberholzer, Research Unit for Economic and Management Sciences, Faculty of Economic and Management Sciences, North-West University, South Africa
Gert van der Westhuizen, Unit for Business Mathematics and Informatics, Faculty of Economic Sciences and Information Technology, North-West University, South Africa

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Abstract

The purpose of this study is to determine the relationship between bank efficiency estimates, measured by Data Envelopment Analysis (DEA), and bank performance, measured by the financial ratios included in the Du Pont analysis. Annual financial statement reports were used to calculate the performance of listed banks on the JSE Limited over a ten-year period. This study is the first to use two unique DEA models: one focuses on the efficiency of the finance and investment activity, and the other on the efficiency of the operating activity of banks. The study found that the majority of significant relationships between efficiency estimates and financial ratios are negatively correlated. Further research is needed to explain this phenomenon. The practical implication of this study is that it indicates that an improvement in the DEA efficiency estimates will not necessarily result in better financial ratios. Therefore, both measurements should be used to evaluate different aspects of performance in order to stay competitive.

Keywords

Data Envelopment Analysis; technical efficiency; allocative efficiency; cost efficiency; financial ratio analysis

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