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Market-Book Ratios of European Banks: What Does Explain the Structural Fall?

Riccardo Ferretti (), Giovanni Gallo (), Andrea Landi () and Valeria Venturelli ()

Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) from Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi"

Abstract: In the years since the outbreak of the crisis, financial markets have persistently reduced the market value of European banks, as consequence of macroeconomic, regulatory and structural factors. Even if these factors affected the whole European banking industry, differences characterized market evaluation of banks along country, size and business mix profiles. Following the extant literature on bank market valuation, our paper tests for the difference between market to book ratios of the large European banks, using three blocks of indicators typically affecting the banks’ market value. To verify our research question, we first regress the market to book ratio over performance measures and risk indicators. Then, we verify whether bank business size and composition affect bank market valuation. Lastly we evaluate the relevance of country context variables, by considering both macroeconomic and banking structure indicators. Our panel consists of all large publicly traded bank holding companies at European level. Large publicly traded banks are all listed banks with consolidated assets exceeding 50 billion euro in 2015. The results highlight that the market considers the fundamental variables (current performance and volatility) as the main factors affecting the evaluation process. Furthermore a significant share of variability in banks’ market-book values is explained by country context variables.

Keywords: market-to book value; country context; business mix; size; panel data; Shapley decomposition (search for similar items in EconPapers)
JEL-codes: G20 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-cfn
Date: 2018-01
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