Book and Market Values of European Banks: Country, Size, and Business Mix Effects

In the years since the outbreak of the crisis, the financial markets have persistently reduced the market value of European banks as a consequence of macroeconomic, regulatory, and structural factors. Even though these factors have affected the European banking industry as a whole, the market valuation of banks have shown differences across country, size, and business mix profiles. In line with the existing literature on bank market valuation, this study tests for the difference between the market-to-book ratios of the large European banks using a variety of indicators typically affecting bank market value. To verify our research questions, we first regress the market-to-book ratio over performance measures, risk indicators, and growth patterns. Then, in a second step, we test whether bank business or country characteristics affect bank market valuation. Our panel consists of all large publicly traded bank holding companies at the European level. Large publicly traded banks comprise all listed banks with consolidated assets exceeding € 50 billion in 2015. The results highlight the relevance of the country context for the consequences on bank performance and stability.