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What Determines the Price to Book Ratio in the European Banking Sector

Author

Listed:
  • Roberto Ercegovac

    (University of Split, Faculty of Economics, Business and Tourism, Split, Croatia)

  • Mario Pecaric

    (University of Split, Faculty of Economics, Business and Tourism, Split, Croatia
    University of Rijeka, Faculty of Economics and Business, Rijeka, Croatia)

  • Ivica Klinac

    (University of Zadar, Department of Economics, Zadar, Croatia)

Abstract

The main research objective of the paper is to find the determinants of the price to book ratios in the European banking sector. Since the outbreak of the last global financial crisis, the price to book ratios of most European banks have remained unexpectedly low as a consequence of the macroeconomic environment, regulatory measures and banks’ business model structures. The dynamic panel analyses is done on the sample of 23 European Union largest public quoted banks for 2002-2017 period. The empirical evidence shows that the price to book ratios of European banks is directly related to the macroeconomic environment and prudential measures, but there are significant differences at individual bank level in terms of activity structure and business performance indicators. The results of the paper are used as a basis for recommendations on management objectives enhancing the value of banking firms, as well as promoting a regulatory dialogue on optimizing a prudential framework structure.

Suggested Citation

  • Roberto Ercegovac & Mario Pecaric & Ivica Klinac, 2020. "What Determines the Price to Book Ratio in the European Banking Sector," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 70(3), pages 262-280, September.
    • Handle: RePEc:fau:fauart:v:70:y:2020:i:3:p:262-280
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    File URL: https://journal.fsv.cuni.cz/mag/article/show/id/1462
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    More about this item

    Keywords

    price to book ratio; regulatory requirements; credit risk portfolio; dynamic panel models; European banking sector;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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