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Value relevance of banks: global evidence

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Abstract

Using 28,785 observations of 813 banking institutions in 38 countries during the 1993–2004 period, this study investigates among others, the role of transparency, accounting standards, legal, financing, corporate, and banking environments at the country level and size, risk, and organization form at the bank-specific level affecting the extent of value relevance. The evidence indicates that at the macro-level, the extent of mandated accounting disclosure, differences in accounting measurement practices, and type of legal environment, were the most influencing factors affecting the extent of value relevance of earnings and book values. At the bank-level, the organizational form and risk had the most impact.

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Notes

  1. We only know of the existence of Institutional Investors in some of the sample banks however do not know the exact percentage of ownership of these investors in respective banks beyond the US sample. When a dummy variable is added for banks that have some involvement of institutional investors, the variable was dominated by US and UK banks and did not change the coefficient and the statistical significance of our key results.

  2. For the country-level variables, it is not obvious that they are measured at the same time. For example, we use the same scores for Transparency, Legal environment, Financing environment, Accounting cluster, Bank Regulatory and Governance variables across all sample years respective countries. Thus strictly speaking one should be cautious in interpreting the results of these models.

  3. The study could have benefitted from a few additional independent variables (e.g., number of analysts covering the sample banks, a quantifiable percentage of relative presence of institutional owners, differences in education or investment sophistication across sample countries, and relative importance of equity markets) in its estimation models. We could only find consistent information on the percentage of equity market held by sample banks in the capital market in a given country. The key results of the paper remained to be similar even after we add this variable—extent of equity market participation by banks—variable. These results are available upon request. We hope that future research would attempt to incorporate these additional variables capturing the sophistication or quality of investors across countries.

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Authors and Affiliations

  1. New Jersey Institute of Technology, Newark, NJ, 07102, USA

    Asokan Anandarajan

  2. Lally School of Management, Rensselaer Polytechnic Institute, Troy, NY, 12180, USA

    Bill Francis

  3. Rensselaer Polytechnic Institute and Bank of Finland, Troy, NY, 12180, USA

    Iftekhar Hasan

  4. Finance Department, Stern School of Business, New York University, KMEC Building 9th Floor, 44, West 4th Street, New York, NY, 10012, USA

    Kose John

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  1. Asokan Anandarajan
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  2. Bill Francis
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  4. Kose John
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Correspondence to Kose John.

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Anandarajan, A., Francis, B., Hasan, I. et al. Value relevance of banks: global evidence. Rev Quant Finan Acc 36, 33–55 (2011). https://doi.org/10.1007/s11156-010-0170-7

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