Assessing the Relationship between Price-Earnings (P/E) Ratio and the Financial Viability of Commercial Banks: Empirical Evidence from Bangladesh

Tandra Mondal
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Tandra Mondal: Associate Professor, Department of Finance and Banking, University of Barishal, Barishal-8254, Bangladesh

International Journal of Research and Innovation in Social Science, 2025, vol. 9, issue 1, 2003-2018

Abstract: This study investigates the relationship between commercial banks’ financial health and the price-earnings (P/E) ratio. Secondary data from 30 commercial banks in Bangladesh was gathered and analyzed over ten years, spanning 2014 to 2023, for this study. A descriptive research design was employed to do this. The data was collected from the selected institutions’ annual reports and financial statements. Panel data regression model, more especially the Fixed Effects Regression with Clustered Standard Errors, was used in this study’s data analysis to mitigate autocorrelation and provide consistent and efficient estimates, thereby enhancing the overall validity of the results. The study’s findings reveal that while the P/E ratio shows a significant relation with the financial performance of banks, certain variables, such as liquidity ratio, leverage ratio, and net interest margin, do not demonstrate a meaningful impact. Additionally, the analysis emphasizes the negative consequences of the COVID-19 epidemic on the banking industry, such as a rise in financial irregularities and a decline in investor confidence, which probably helps make some of the independent variables insignificant. This research offers valuable insight into the financial viability of commercial banks in Bangladesh and suggests that the P/E ratio, while helpful, must be considered alongside other macroeconomic and institutional factors. However, this study highlights the importance of using multiple financial indicators for informed investment decisions and aids banking professionals in evaluating the long-term financial health of banks.

Date: 2025
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