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Volume 70, Issue 3


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

Ercegovac, Roberto; Klinac, Ivica; Pečarić, Mario

Year: 2020   Volume: 70   Issue: 3   Pages: 262-280

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.

JEL classification: C33, D53, F65, G21

Keywords: price to book ratio, regulatory requirements, credit risk portfolio, dynamic panel models, European banking sector

DOI: https://doi.org/10.32065/CJEF.2020.03.04

RePEc: https://ideas.repec.org/a/fau/fauart/v70y2020i3p262-280.html

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