Market-based vs. accounting-based performance of banks in Asian emerging markets
This paper compares the market-based and accounting-based performances of listed commercial banks among eight Asian emerging markets such as China, India, Indonesia, Korea, Malaysia, the Philippines, Taiwan and Thailand over the period 2005-2010. Market-based performance is measured by Tobin’s Q ratio and accounting-based performance is measured by three conventional ratios for a bank: net interest margin, return on assets and return on equity. It is found that Indonesian banks have the highest average Tobin’s Q of 1.14, return on assets of 1.82 percent and net interest margin of 5.34 percent, whereas banks in China and India have the highest average return on equity of 18.22 percent. Banks in Korea, Taiwan and Thailand have the lowest average Q ratio of 1.00. Banks in Taiwan also have the lowest average return on assets of negative 0.57 percent, return on equity of negative 7.80 percent and net interest margin of 1.97 percent. Q is shown to be significantly positively related to return on assets and return on equity, but there is no significant relationship between Q and net interest margin. Further, the determinants of each type of performance are found to be different. The GLS regression result reveals that return on assets is significantly positively associated to the bank’s capital adequacy; return on equity is significantly positively linked to asset quality; net interest margin is significantly positively affected by capital adequacy and negatively affected by liquidity; whereas the Q ratio is significantly positively related to capital adequacy and asset quality. Finally, the different regression results for banks in each single emerging market indicate that the market-based and accounting-based performances of commercial banks in different emerging market are affected by different factors in different ways.
JEL classification: G2; G21
Keywords: Market-based, accounting-based, performance, banks, Asian emerging market
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