Bank performance in Europe and the US: A divergence in market-to-book ratios

Abstract

Post 2008, the market-to-book ratios of European and US banks have diverged markedly. We use panel regressions to investigate the determinants of the M/B ratios of 112 European and US banks. We show that the underperformance of European banks is mainly driven by non-performing loans and by the negative impact of policy rates on bank interest margins. The higher US bank valuations are mainly driven by higher profitability and better cost efficiency. Our results for European banks stress the importance of timely NPL resolution and imply that low-for-long monetary policy may harm bank health.

Does diversification protect European banks’ market valuations in a pandemic?

“…The average euro area bank market-to-book ratio dropped to 0.3, an unseen level indicating serious stress in the banking system (ECB, 2020). Likely sources for these low valuations are the expectation of a pandemic-induced wave of non-performing loans, low-for-longer interest rates and lower anticipated bank profitability (see Simoens and Vander Vennet (2020)).…”

Chief Executive Officers and the Value of US Airlines: The Moderating Effect of Carrier Type

“…Market-to-book value is an indicator of business performance; it reflects the market evaluation of a business [12,13,22]. Market value includes more diverse elements: reputation, potential business growth rate, market reputation, brand value, quality of human capital, risk, and amount of assets, whereas book value includes visible aspects of a business [30][31][32]. Hence, scholars have contended that market value reflects both the past and future of a business, while profitability in financial statements concentrates on past shortterm performance [14,15,22].…”

“…Dita and Murtaqi [23] scrutinized corporations in the domain of the consumer goods business, while using market-to-book value as the main attribute. In another study in the banking sector, Simoens and Vander Vennet [32] chose market-to-book value as the dependent variable. Tekin [34] examined the determinants of market-to-book value in the real estate investment trust business.…”

Evolution of the bankruptcy rate indicator in the chemical segment in Slovakia in the context of the pandemic

“…Proportional financial ratios represent a special type of relationship between two variables and are frequently used in finance and have been the subject of research by many researchers (Brown, 2011;simoens & vennet, 2020;Husna & satria, 2019;sriram, 2020;Husain & sunardi, 2020;Gill et al, 2010;Agrrawal et al, 2010;musallam, 2018). Pelita states that the use of ratios in financial analysis is characterized by its simplicity, leads to the display of data that are not directly disclosed in the final financial statements, and, in addition, allows for year-on-year comparisons (Pelita, 2017).…”