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

Author

Listed:
  • Riccardo Ferretti
  • Giovanni Gallo
  • Andrea Landi
  • Valeria Venturelli

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.

Suggested Citation

  • Riccardo Ferretti & Giovanni Gallo & Andrea Landi & Valeria Venturelli, 2018. "Market-Book Ratios of European Banks: What Does Explain the Structural Fall?," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0065, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
  • Handle: RePEc:mod:wcefin:0065
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    References listed on IDEAS

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    Cited by:

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    2. Chiara Pederzoli & Costanza Torricelli, 2019. "The impact of the Fundamental Review of the Trading Book: A preliminary assessment on a stylized portfolio," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0075, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    3. Francesca Arnaboldi, Francesca Gioia, 2019. "Portfolio choice: Evidence from new-borns," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0078, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    4. Stefano Cosma & Francesca Pancotto & Paola Vezzani, 2018. "Customer Complaining and Probability of Default in Consumer Credit," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 0068, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".

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    More about this item

    Keywords

    market-to book value; country context; business mix; size; panel data; Shapley decomposition;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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