Financial Indicators, Stock Prices and Returns: Evidence from Banks Listed on the Stock Exchange of an Emerging Market (CSE)

The Moroccan banking sector has undergone major developments following the structural reforms undertaken and which have enabled it to comply with international standards. The implementation of internal control, compliance and risk management systems has significantly improved its profitability. Indeed, Moroccan banks are subject to restrictive regulations and close supervision by the Moroccan Central Bank, Bank Al-Maghrib, to monitor and regulate their growth and exposure to the various risks inherent to their activities, including credit, liquidity, market and operational risks. Among the banks in the sector, six are listed on the Casablanca Stock Exchange, including market-leading banks such as Attijari Wafa bank, Bank of Africa and Banque Centrale Populaire. On the other hand, the Moroccan stock market attracts several local and foreign investors who would be interested in whether the price of shares and their evolution can be predicted by banking and financial ratios. The main objective of this study is to analyze the relationship between share prices and returns of listed banks and indicators of solvency, liquidity, asset quality and profitability. This article runs a multiple linear regression in a panel data analysis using the financial data of commercial banks listed on the Casablanca Stock Exchange from 2011 to 2020. In an efficient financial market, stock prices and their fluctuations should reflect the profitability of banks, alongside with their liquidity, and their solvency, which is a guarantee of the resilience of the banking during financial and economic crises. The results show that stock prices are not impacted by the level of liquidity, asset quality and profitability indicators, raising a much-debated question about the efficiency of the Moroccan stock market. On the other hand, other tests show that the level of profitability of banks, measured by ROA, is linked to the above-mentioned indicators.