IDEAS home Printed from https://ideas.repec.org/a/rnd/arjebs/v4y2012i2p87-95.html

Credit Risk and Shareholders’ Value in a Developing Economy: Evidence from Pakistani Banking System

Author

Listed:
  • Ahmed Arif
  • Mohammad Afzal

Abstract

The present study examines the role of credit risk in value creation process in banking system of Pakistan. This study here develops a conceptual model with three antecedents to credit risk. These antecedents are loan loss provision, advances, and capital adequacy ratio. The study analyzes the impact of these antecedents on accounting return on equity (ROE) and market return on shares (ROS). The data come from 20 banks listed on Karachi Stock Exchange (KSE) for 2004-2009. The study includes panel data analysis to analyze the relationship between the selected variables. The results of this study expose a minimal role of credit risk in value creation process in banking system of Pakistan. The results further reveal that banks with higher advances in their portfolio are successful in getting the confidence of shareholders.

Suggested Citation

  • Ahmed Arif & Mohammad Afzal, 2012. "Credit Risk and Shareholders’ Value in a Developing Economy: Evidence from Pakistani Banking System," Journal of Economics and Behavioral Studies, AMH International, vol. 4(2), pages 87-95.
    • Handle: RePEc:rnd:arjebs:v:4:y:2012:i:2:p:87-95
    DOI: 10.22610/jebs.v4i2.306
    as

    Download full text from publisher

    File URL: https://ojs.amhinternational.com/index.php/jebs/article/view/306/306
    Download Restriction: no
    File URL: https://ojs.amhinternational.com/index.php/jebs/article/view/306
    Download Restriction: no
    File URL: https://libkey.io/10.22610/jebs.v4i2.306?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. Honohan,Patrick & Laeven,Luc (ed.), 2005. "Systemic Financial Crises," Cambridge Books, Cambridge University Press, number 9780521851855, Enero-Abr.
    2. Jose A. Lopez, 2001. "Financial instruments for mitigating credit risk," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov23.
    3. John V. Duca & Mary M. McLaughlin, 1990. "Developments affecting the profitability of commercial banks," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 477-499.
    4. Baele, Lieven & De Jonghe, Olivier & Vander Vennet, Rudi, 2007. "Does the stock market value bank diversification?," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 1999-2023, July.
    5. Berger, Allen N. & Humphrey, David B., 1997. "Efficiency of financial institutions: International survey and directions for future research," European Journal of Operational Research, Elsevier, vol. 98(2), pages 175-212, April.
    6. Stephen Miller & Athanasios Noulas, 1997. "Portfolio mix and large-bank profitability in the USA," Applied Economics, Taylor & Francis Journals, vol. 29(4), pages 505-512.
    7. Allen, Franklin & Santomero, Anthony M., 1997. "The theory of financial intermediation," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1461-1485, December.
    8. Apanard P. Angkinand & Wanvimol Sawangngoenyuang & Clas Wihlborg, 2010. "Financial Liberalization and Banking Crises: A Cross-Country Analysis-super-," International Review of Finance, International Review of Finance Ltd., vol. 10(Financial), pages 263-292.
    9. Edward I. Altman, 1998. "Credit Risk Measurement and Management: The Ironic Challenge in the Next Decade," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-003, New York University, Leonard N. Stern School of Business-.
    10. Rudra Sensarma & M. Jayadev, 2009. "Are bank stocks sensitive to risk management?," Journal of Risk Finance, Emerald Group Publishing, vol. 10(1), pages 7-22, January.
    11. Kevin Keasey & Gianluca Veronesi, 2008. "Lessons from the Northern Rock affair," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 16(1), pages 8-18, February.
    12. Fadzlan Sufian, 2009. "Factors Influencing Bank Profitability in a Developing Economy," Global Business Review, International Management Institute, vol. 10(2), pages 225-241, July.
    13. Fadzlan Sufian & Muzafar Shah Habibullah, 2009. "Determinants of bank profitability in a developing economy: Empirical evidence from Bangladesh," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 10(3), pages 207-217, April.
    14. Fatemi, Ali & Luft, Carl, 2002. "Corporate risk management: Costs and benefits," Global Finance Journal, Elsevier, vol. 13(1), pages 29-38.
    15. Hussein A. Hassan Al-Tamimi & Faris Mohammed Al-Mazrooei, 2007. "Banks' risk management: a comparison study of UAE national and foreign banks," Journal of Risk Finance, Emerald Group Publishing, vol. 8(4), pages 394-409, August.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ilda Kadrimi Blaceri & Armela Anamali, 2019. "Fiscal Policy Challenges for Countries that Join the EU," European Journal of Economics and Business Studies Articles, Revistia Research and Publishing, vol. 5, ejes_v5_i.

    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. Trofimov, Ivan D. & Md. Aris, Nazaria & Ying Ying, Jovena Kho, 2018. "Determinants of Commercial Banks' Profitability in Malaysia," MPRA Paper 85598, University Library of Munich, Germany.
    2. Saeed Sazzad Jeris, 2021. "Factors Influencing Bank Profitability in a Developing Economy: Panel Evidence From Bangladesh," International Journal of Asian Business and Information Management (IJABIM), IGI Global Scientific Publishing, vol. 12(3), pages 333-346, July.
    3. Robin, Iftekhar & Salim, Ruhul & Bloch, Harry, 2018. "Financial performance of commercial banks in the post-reform era: Further evidence from Bangladesh," Economic Analysis and Policy, Elsevier, vol. 58(C), pages 43-54.
    4. Kwame Mireku & Emmanuel Akomeah Sakyi & Joseph Akadeagre Agana, 2018. "Does Commercial Banks Presence Enhance Profitability in Ghana?," Global Business Review, International Management Institute, vol. 19(6), pages 1449-1461, December.
    5. Bijoy Rakshit, 2021. "Evaluating Profitability and Marketability Efficiency: A Case of Indian Commercial Banks," Global Business Review, International Management Institute, vol. 22(4), pages 977-995, August.
    6. Panagiotis Staikouras & Christos Staikouras & Maria-Eleni Agoraki, 2007. "The effect of board size and composition on European bank performance," European Journal of Law and Economics, Springer, vol. 23(1), pages 1-27, February.
    7. Song l KAK LL ACARAVCI & Ahmet Ertugrul ALIM, 2013. "Turkish Banking Sector's Profitability Factors," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 27-41.
    8. Peterson K. Ozili, 2017. "Bank Profitability and Capital Regulation: Evidence from Listed and non-Listed Banks in Africa," Journal of African Business, Taylor & Francis Journals, vol. 18(2), pages 143-168, April.
    9. Westman, Hanna, 2011. "The impact of management and board ownership on profitability in banks with different strategies," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3300-3318.
    10. Hamdi, Helmi & Jlassi, Nabila Boukef, 2014. "Financial liberalization, disaggregated capital flows and banking crisis: Evidence from developing countries," Economic Modelling, Elsevier, vol. 41(C), pages 124-132.
    11. Yi-cheng Liu & Yue-cune Chang, 2013. "The Regional Performances of Agricultural Bank of China Applying GEE Method Multiple Linear Regression," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 3(5), pages 1-3.
    12. Gazmend Nure, 2019. "The Impact of Specific Banking, Industrial and Macroeconomic Factors on Bank Profitability: Evidence from the Albanian Banking System," Business and Economic Research, Macrothink Institute, vol. 9(2), pages 182-198, June.
    13. Nguyen, Thi Lam Anh, 2018. "Diversification and bank efficiency in six ASEAN countries," Global Finance Journal, Elsevier, vol. 37(C), pages 57-78.
    14. Olivier De Jonghe & Mustafa Disli & Koen Schoors, 2012. "Corporate Governance, Opaque Bank Activities, and Risk/Return Efficiency: Pre- and Post-Crisis Evidence from Turkey," Journal of Financial Services Research, Springer;Western Finance Association, vol. 41(1), pages 51-80, April.
    15. Constantinos Alexiou & Voyazas Sofoklis, 2009. "Determinants Of Bank Profitability: Evidence From The Greek Banking Sector," Economic Annals, Faculty of Economics and Business, University of Belgrade, vol. 54(182), pages 93-118, July – Se.
    16. Bitar, Mohammad & Saad, Wadad & Benlemlih, Mohammed, 2016. "Bank risk and performance in the MENA region: The importance of capital requirements," Economic Systems, Elsevier, vol. 40(3), pages 398-421.
    17. Girma Jirata Duguma & Jiqin Han, 2021. "Effect of deposit mobilization on the technical efficiency of rural saving and credit cooperatives: Evidence from Ethiopia," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 92(4), pages 621-647, December.
    18. Girish Karunakaran Nair & Harsh Purohit & Nidhi Choudhary, 2014. "Influence of Risk Management on Performance: An Empirical Study of International Islamic Bank," International Journal of Economics and Financial Issues, Econjournals, vol. 4(3), pages 549-563.
    19. Mamatzakis, Emmanuel & Bermpei, Theodora, 2014. "What drives investment bank performance? The role of risk, liquidity and fees prior to and during the crisis," International Review of Financial Analysis, Elsevier, vol. 35(C), pages 102-117.
    20. Fadzlan Sufian & Muzafar Shah Habibullah, 2012. "Developments in the efficiency of the Malaysian banking sector: the impacts of financial disruptions and exchange rate regimes," Progress in Development Studies, , vol. 12(1), pages 19-46, January.

    More about this item

    Statistics

    Access and download statistics

    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:rnd:arjebs:v:4:y:2012:i:2:p:87-95. 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: Muhammad Tayyab (email available below). General contact details of provider: https://ojs.amhinternational.com/index.php/jebs .

    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.