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A comprehensive analysis of the decline in the market-to-book ratio of European banks

Author

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  • Markoulis, S.
  • Martzoukos, S.
  • Savvas, S.
  • Zagkreos, V.

Abstract

We analyse a sample of 215 European banks and find that their market-to-book ratio has declined substantially since the GFC. To assess what may account for this, bank-specific and country-specific indicators are used, as well as, for the first time for European banks, ESG variables. We find bank fundamentals, such as ROE and volatility of stock returns to be important determinants of the market-to-book ratio. We also find the valuation of large banks to be penalized more, relative to that of smaller ones. On the country-specific front, we find GDP growth to be significant, as well as the relative size of the banking sector. As far as ESG is concerned, we find different ESG sub-pillars to affect bank valuation differently, more specifically, we find a positive relationship between duality and valuation, particularly for large banks, and a negative one for environmental engagement, the latter being suggestive of the ‘over-investment’ hypothesis.

Suggested Citation

  • Markoulis, S. & Martzoukos, S. & Savvas, S. & Zagkreos, V., 2025. "A comprehensive analysis of the decline in the market-to-book ratio of European banks," International Review of Economics & Finance, Elsevier, vol. 100(C).
  • Handle: RePEc:eee:reveco:v:100:y:2025:i:c:s1059056025002709
    DOI: 10.1016/j.iref.2025.104107
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    More about this item

    Keywords

    Market-to-book ratio; Franchise value; Bank fundamentals; Shapley-owen decomposition; ESG;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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