According to official reports of the Tehran Stock Exchange (TSE), the accumulative market value of Iran’s insurance and banking sectors is approximately 10% of the total stock market value for all sectors of Iran’s economy. Surprisingly, however, the investment returns that these sectors provided to their shareholders are significantly lower than the returns of many listed firms in other sectors. By analysing the financial statements of listed banks and insurance companies, it becomes clear that these industries have always been one of the five most prominent and influential on the TSE in terms of market value. Also, in terms of registered capital, more than 70% of banks are among the top 100 companies, and the remainder are among the top 200 companies, in terms of registered capital among all 706 listed companies on the TSE. In the insurance sector, almost 50% of the insurance companies listed are among the top 200 companies in terms of registered capital, and the remainder are ranked among the top 300 companies listed on this exchange. However, when considering the poor performance of these firms’ returns on shares over the last five years, it is not possible to rank them even among Iran’s top 10 industries.

A study of the recent performance of Iranian listed financial institutions shows that that insurance and banking institutions do not perform well in terms of optimising their input and output variables and increasing their efficiency. By identifying the managerial problems of listed financial entities, this study analyses the relationship between these companies’ stock returns and efficiency, and the extent to which these two components affect each other.

I use the data envelopment analysis (DEA) method to examine each company’s input and output variables to analyse their efficiency. Then I calculate financial companies’ stock returns by putting these two variables together with other control variables in a regression model. Then I analyse the outputs of the regression coefficients to study the effect of efficiency on stock returns. The results of the regression output and examination of the coefficients of each variable showed that, although minimising the related costs and financial parameters in the Iranian listed banks and insurance companies could improve the efficiency of the listed financial firms, but this improvement does not necessarily have a significant effect on their stock returns.

Finally, the managerial implication of this research suggests for the investor's perspective, not only efficiency but also numerous other factors effect a company’s share price fluctuations and many other elements which are mentioned in this study should be also considered. Therefore, taking into consideration all the other general aspects such as political and economic conditions, in addition to firms’ performance, represents an optimal strategy for investing in listed financial companies’ shares in Iran’s capital market. On the other hand from the policymaker's perspective, the managerial outcome of this research would be that some of the conditions in Iran’s macro governance structure needs to be softened and modified in order to establish a strong connection between efficiency and share returns which will help financial entities improve their efficiency and pave the way for share price appreciation and more value creation for their stakeholders.