The Relationship Between Profitability and Market Value: Evidence from Jordanian Banks

Mohammad Fawzi Shubita ()
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Mohammad Fawzi Shubita: Amman Arab University

A chapter in New Perspectives and Paradigms in Applied Economics and Business, 2023, pp 3-16 from Springer

Abstract: Abstract The purpose of this study is to examine the relationship between profitability and the market value of the bank, and the relation between high and low profitability with market value using the bank size measured by total assets as a control variable. The study sample is the Jordanian banks listed on Amman Stock Exchange for the period from 2010 to 2020. ROE measures the return per equity invested by the owner, and it is important to know how well management is deployed the bank's equity in the pursuit of earnings. The bank market value is measured using the market-to-book value ratio. The study methods are to use the main model and benchmark model with panel and pooled OLS regression and random effect models approach with several econometrics tools like Husman test, variance inflation factor, and panel granger causality. The study's main results are that the high-profit banks have a higher market value than low-profit banks, there is a relationship between high and low ROE and market value, there is a relationship between earnings and market value, and the bank size affects the relationship between ROE and market value. About the last result, the Adj R2 for small banks is 26.2%, which is higher than the full sample (16.9%) and large banks (14.1%). As a conclusion, the study recommends the creditors and investors benefit from the study results by concentrating more on the company's financial results before making the investment decision.

Keywords: Profitability; Fair value; Banks size; Emerging market; Jordan (search for similar items in EconPapers)
JEL-codes: G21 G32 M41 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-031-23844-4_1

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DOI: 10.1007/978-3-031-23844-4_1

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