IDEAS home Printed from https://ideas.repec.org/a/jfr/ijfr11/v8y2017i4p196-212.html
   My bibliography  Save this article

Shareholder Value Index for Saudi Banks

Author

Listed:
  • Sunitha Kumaran

Abstract

This paper aims to examine the shareholder value efficiency and build a Shareholder Value Index for Saudi banks between 2010 and 2014. Shareholder value efficiency is measured using value based performance metrics and binary logistic regression model was adopted to develop the Shareholder Value Index for Saudi banks. The Shareholder Value Index developed provides the probability of a bank¡¯s competence to create/erode shareholders' wealth. The study finds that Economic Value Added (EVA) is the value-based performance metric that comes closer than any other to capture the true Economic Profit and the market performance (Market Value Added) of banks. Positive EVA of most of the commercial banks denote that they are more Shareholder value efficient than Islamic banks. High Market Value Added (MVA) represents a highly positive outlook of the investors on the Saudi banks' performance. Value creation is significantly linked to high Net Operating Profit After Tax and a low cost of capital. The most significant observation is that not all banks with highest capital employed are the highest value creators. The Shareholder Value Index developed indicate that majority of Saudi banks demonstrate a higher probability of shareholder value creation. Few Islamic banks showed a less probability of wealth creation for the period of study and are predicted to improve the shareholder value creation ability through their aggressive strategy in the future.

Suggested Citation

  • Sunitha Kumaran, 2017. "Shareholder Value Index for Saudi Banks," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 8(4), pages 196-212, October.
    • Handle: RePEc:jfr:ijfr11:v:8:y:2017:i:4:p:196-212
    DOI: 10.5430/ijfr.v8n4p196
    as

    Download full text from publisher

    File URL: http://www.sciedu.ca/journal/index.php/ijfr/article/view/12381/7619
    Download Restriction: no
    File URL: http://www.sciedu.ca/journal/index.php/ijfr/article/view/12381
    Download Restriction: no
    File URL: https://libkey.io/10.5430/ijfr.v8n4p196?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Chu, Sing Fat & Lim, Guan Hua, 1998. "Share performance and profit efficiency of banks in an oligopolistic market: evidence from Singapore," Journal of Multinational Financial Management, Elsevier, vol. 8(2-3), pages 155-168, September.
    2. Dennis G. Uyemura & Charles C. Kantor & Justin M. Pettit, 1996. "Eva® For Banks: Value Creation, Risk Management, And Profitability Measurement," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(2), pages 94-109, June.
    3. Kenneth Lehn & Anil K. Makhija, 1997. "Eva, Accounting Profits, And Ceo Turnover: An Empirical Examination, 1985–1994," Journal of Applied Corporate Finance, Morgan Stanley, vol. 10(2), pages 90-97, June.
    4. Taqi N. Al-Faraj & Khaled A. Bu-Bshait & Wasel A. Al-Muhammad, 2006. "Evaluating the efficiency of Saudi commercial banks using data development analysis," International Journal of Financial Services Management, Inderscience Enterprises Ltd, vol. 1(4), pages 466-477.
    5. Biddle, Gary C. & Bowen, Robert M. & Wallace, James S., 1997. "Does EVA(R) beat earnings? Evidence on associations with stock returns and firm values," Journal of Accounting and Economics, Elsevier, vol. 24(3), pages 301-336, December.
    6. Acheampong, Yvonne J. & Wetzstein, Michael E., 2001. "Comparative Analysis Of Value-Added And Traditional Measures Of Performance: An Efficiency Score Approach," Faculty Series 16715, University of Georgia, Department of Agricultural and Applied Economics.
    7. Elena Beccalli & Barbara Casu & Claudia Girardone, 2006. "Efficiency and Stock Performance in European Banking," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(1‐2), pages 245-262, January.
    8. Fiordelisi, Franco & Molyneux, Phil, 2010. "The determinants of shareholder value in European banking," Journal of Banking & Finance, Elsevier, vol. 34(6), pages 1189-1200, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carretta, Alessandro & Farina, Vincenzo & Fiordelisi, Franco & Schwizer, Paola, 2006. "Corporate culture and shareholder value in banking industry," MPRA Paper 8304, University Library of Munich, Germany.
    2. Mohsen Afsharian & Anna Kryvko & Peter Reichling, 2011. "Efficiency and Its Impact on the Performance of European Commercial Banks," FEMM Working Papers 110018, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    3. Ashita Agrawal & Pitabas Mohanty & Navindra Kumar Totala, 2019. "Does EVA Beat ROA and ROE in Explaining the Stock Returns in Indian Scenario? An Evidence Using Mixed Effects Panel Data Regression Model," Management and Labour Studies, XLRI Jamshedpur, School of Business Management & Human Resources, vol. 44(2), pages 103-134, May.
    4. Tracey West & Andrew Worthington, 1999. "The information content of economic value-added: A comparative analysis with earnings, cash flow and residual income," School of Economics and Finance Discussion Papers and Working Papers Series 066, School of Economics and Finance, Queensland University of Technology.
    5. Dipasha Sharma, 2018. "Stock Market Performance and Efficiency of Banks in a Developing Economy: Evidence from the Indian Banking Sector," IIM Kozhikode Society & Management Review, , vol. 7(2), pages 178-193, July.
    6. Xiaoqing Maggie Fu & Yongjia Rebecca Lin & Philip Molyneux, 2015. "Bank Efficiency and Shareholder Value in Asia Pacific," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Bank Competition, Efficiency and Liquidity Creation in Asia Pacific, chapter 4, pages 72-95, Palgrave Macmillan.
    7. Fiordelisi, Franco, 2007. "Shareholder value efficiency in European banking," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 2151-2171, July.
    8. Peter Kien Pham & Jo-Ann Suchard & Jason Zein, 2011. "Corporate governance and alternative performance measures: evidence from Australian firms," Australian Journal of Management, Australian School of Business, vol. 36(3), pages 371-386, December.
    9. Zbysław Dobrowolski & Grzegorz Drozdowski & Mirela Panait & Arkadiusz Babczuk, 2022. "Can the Economic Value Added Be Used as the Universal Financial Metric?," Sustainability, MDPI, vol. 14(5), pages 1-14, March.
    10. Fethi, Meryem Duygun & Pasiouras, Fotios, 2010. "Assessing bank efficiency and performance with operational research and artificial intelligence techniques: A survey," European Journal of Operational Research, Elsevier, vol. 204(2), pages 189-198, July.
    11. Eleftherios Angelopoulos & Antonios Georgopoulos, 2015. "The Determinants of Shareholder Value in Retail Banking During Crisis Years: The Case of Greece," Multinational Finance Journal, Multinational Finance Journal, vol. 19(2), pages 109-147, June.
    12. Muliaman Hadad & Maximilian Hall & Karligash Kenjegalieva & Wimboh Santoso & Richard Simper, 2011. "Banking efficiency and stock market performance: an analysis of listed Indonesian banks," Review of Quantitative Finance and Accounting, Springer, vol. 37(1), pages 1-20, July.
    13. Saadet Kasman & Adnan Kasman, 2011. "Efficiency, Productivity and Stock Performance: Evidence from the Turkish Banking Sector," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(3), pages 355-372, September.
    14. Nusrat Jahan, 2020. "An Investigation into the Equivalency of Three Performance Dimensions: Evidence from Commercial Banks in Bangladesh," Papers 2005.09483, arXiv.org.
    15. Radić, Nemanja, 2015. "Shareholder value creation in Japanese banking," Journal of Banking & Finance, Elsevier, vol. 52(C), pages 199-207.
    16. Fiordelisi, Franco & Molyneux, Phil, 2010. "Total factor productivity and shareholder returns in banking," Omega, Elsevier, vol. 38(5), pages 241-253, October.
    17. Fotios Pasiouras & Aggeliki Liadaki & Constantin Zopounidis, 2008. "Bank efficiency and share performance: evidence from Greece," Applied Financial Economics, Taylor & Francis Journals, vol. 18(14), pages 1121-1130.
    18. Ittner, Christopher D. & Larcker, David F., 2001. "Assessing empirical research in managerial accounting: a value-based management perspective," Journal of Accounting and Economics, Elsevier, vol. 32(1-3), pages 349-410, December.
    19. Nemanja Radić & Franco Fiordelisi & Claudia Girardone, 2012. "Efficiency and Risk-Taking in Pre-Crisis Investment Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 41(1), pages 81-101, April.
    20. Sliman S. Alsoboa, 2017. "The Influence of Economic Value Added and Return on Assets on Created Shareholders Value: A Comparative Study in Jordanian Public Industrial Firms," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 9(4), pages 63-78, April.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jfr:ijfr11:v:8:y:2017:i:4:p:196-212. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Gina Perry (email available below). General contact details of provider: http://ijfr.sciedupress.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.