This dissertation analyses the relationship between shareholder value (SHV) and its determinants in European banking markets. The dissertation examines the economic objectives of a bank showing that managing to create sustained and sustainable SHV is an important goal for European banks (chapter 2). We discuss the foundations of SHV theory focussing on the four following issues: the concept of SHV and wealth, the evolution of SHV theory, measurement performance
methodologies and a review of the empirical literature (chapter 3). We also analyse how commercial banks can create SHV by outlining a set of strategies that appear able to improve, ceteris paribus, at least one of the determinants of SHV (chapter 4). The thesis presents various empirical investigations into SHV creation in European banking (focussing on France, Germany, Italy and the United Kingdom). In Chapter 5, we undertake a comparative analysis of traditional and non-traditional bank performance indicators in the light of creating SHV, using a sample of listed banks only.
Our results suggest that the EVA measure (that accounts for the specifics of banking) has the greatest ability to explain variation of market-adjusted returns. The second part of Chapter 5 discusses the levels of SHV created looking at a larger sample comprising both listed and non-listed banks. We found that European banks generate, on average, substantial and wide-spread profits, but these do not seem to have created SHV in many cases, since profits are often lower than the
opportunity cost of equity capital. In Chapter 6, we present various approaches that empirically investigate the determinants of SHV. We estimate cost efficiency, alternative profit efficiency measures, Malmquist productivity index and bank customer satisfaction. After having estimated the main determinants of SHV we empirically analyse their value-relevance (chapter 7). We find that TFP changes best explain variations in SHV and cost efficiency is the second most important factor in explaining variations in SHV. Alternative profit efficiency is found to have a substantially lower value-relevance. While our measure of customer satisfaction explains some variation in SHV, the influence is slightly lower than for TFP or cost x-efficiency. Finally, we present a new measure of efficiency labelled "shareholder value efficiency"( chapter 8).
European banks display SHV inefficiency scores that suggest, on average, banks are 36% SHV inefficient.
Our results provide strong evidence that there is a positive relationship between SHV efficiency and bank SHV and SHV efficiency has a higher relative information content than that estimated for cost-x-efficiency and alternative profit efficiency. This superiority is very small for listed banks, while it is substantial for non-listed banks. As such, SHV efficiency seems to be particularly useful for non-listed banks for investigating the ability of these banks to create value for their shareholders/stakeholders.