Using the Tobin Q model to evaluate the impact of credit risks on the bank’s market value during the corona pandemic

Abstract

Purpose This paper aims to assess the impact of credit risk on the market values of private banks during the corona pandemic. Design/methodology/approach This study is identifying critical issues of credit risk at six great private banks. A conceptual framework is designed based on the Tobin Q model for investigating study hypotheses. Quantitative financial analysis methods have been used for processing data, such as financial ratios, arithmetic mean and multiple linear regression. Findings The most important result of this study is the lack of influence of credit risk on the market value of selected banks. Because the dimensions of credit risk have critical importance in increasing or decreasing the market value, these banks must continue to adopt quantitative financial analysis to measure credit risks to avoid their risk. Originality/value This study elaborates the need for financial indicators to help assess the market value of banks during the economic crises caused by the closure of commercial institutions during the corona pandemic. There is continued increase in bank credit to support these institutions, borrowers and cash withdrawals, which may affect their market reputation.

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“…Regulatory frameworks have to move ahead from creating awareness on investor perceptions on suitability of Islamic products to trust-enhancing market environment that promotes transparency, investor confidence and financial services that create jobs in real economy on the back of investments in the future of knowledge economies and sustainable solutions. In sum, this should be available through qualified and aggregated data sets (Butt et al , 2023) and through efficient provision of financial services in periods when markets squeeze (Mkalaf and Hilo, 2023; Yudaruddin, 2023). In turn, this is also linked to standardisation of governance mechanisms at macro-level (e.g.…”

“…Mkalaf and Hilo (2023) in their titled work “Using the Tobin’s Q model to evaluate the Impact of Credit Risks on the Bank’s Market Value during the Corona pandemic” aim to assess the impact of credit risk on the market values of the private banks during corona pandemic. This study identifies the critical issues on credit risk at six large private banks.…”

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