Version 1
: Received: 27 June 2024 / Approved: 28 June 2024 / Online: 2 July 2024 (09:22:24 CEST)
How to cite:
Martínez, F. G.; Jimenez, J. D.; Matas, R. Q. S. D. L. Reevaluating Bank Price-to-Book Ratios: An In-Depth Analysis of Equity Components Across Economic Cycles. Preprints2024, 2024062038. https://doi.org/10.20944/preprints202406.2038.v1
Martínez, F. G.; Jimenez, J. D.; Matas, R. Q. S. D. L. Reevaluating Bank Price-to-Book Ratios: An In-Depth Analysis of Equity Components Across Economic Cycles. Preprints 2024, 2024062038. https://doi.org/10.20944/preprints202406.2038.v1
Martínez, F. G.; Jimenez, J. D.; Matas, R. Q. S. D. L. Reevaluating Bank Price-to-Book Ratios: An In-Depth Analysis of Equity Components Across Economic Cycles. Preprints2024, 2024062038. https://doi.org/10.20944/preprints202406.2038.v1
APA Style
Martínez, F. G., Jimenez, J. D., & Matas, R. Q. S. D. L. (2024). Reevaluating Bank Price-to-Book Ratios: An In-Depth Analysis of Equity Components Across Economic Cycles. Preprints. https://doi.org/10.20944/preprints202406.2038.v1
Chicago/Turabian Style
Martínez, F. G., Juan Domínguez Jimenez and Ricardo Queralt Sánchez de las Matas. 2024 "Reevaluating Bank Price-to-Book Ratios: An In-Depth Analysis of Equity Components Across Economic Cycles" Preprints. https://doi.org/10.20944/preprints202406.2038.v1
Abstract
This study explores the evolution of price-to-book (P/B) ratios among European banks from 2005 to 2020, period where the majority of banks in different countries had a P/B ratio below 1. By dissecting banks' accounting equity into investor contributions and earnings-derived components, the research aims to evaluate how each component of equity affects these ratios and investigates whether their dynamics shifted during the period. We address a gap in prior research that has not extensively examined how individual equity components affect the overall P/B ratio. This aspect is crucial, especially in scenarios where the increase of specific components compensates for declines in others, thereby stabilizing total equity values. Our methodology involves regression analyses using a panel data model with random effects. The findings reveal that earnings-related equity components significantly influence P/B ratios. In contrast, investor contributions; which strengthen the solvency of the entity, appear to have a minimal impact. Additionally, our analysis highlights a significant quadratic relationship between the P/B ratios and both the profit or loss reported on Income Statements and distributed dividends.
Keywords
Price-to-Book Ratios; Equity Components; Regulatory capital
Subject
Business, Economics and Management, Accounting and Taxation
Copyright:
This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
