The valuation of European financial firms

Danbolt, J. and Rees, W. (2002) The valuation of European financial firms. Review of Accounting and Finance, 1(1), pp. 5-24.




We extend the recent literature concerning accounting based valuation models to investigate financial firms from six European countries with substantial financial sectors: France, Germany, Italy, Netherlands, Switzerland and the UK. Not only are these crucial industries worthy of study in their own right, but unusual accounting practices, and inter-country differences in those accounting practices, provide valuable insights into the accounting-value relationship. Our sample consists of 7,714 financial firm/years observations from 1,140 companies drawn from 1989-2000. Sub-samples include 1,309 firm/years for banks, 650 for insurance companies, 1,705 for real estate firms, and 3,239 for investment companies. In most countries we find that the valuation models work as well or better in explaining cross-sectional variations in the market-to-book ratio for financial firms as they do for industrial and commercial firms in the same countries, although Switzerland is an exception to this generalization. As expected, the results are sensitive to industrial differences, accounting regulation and accounting practices. In particular, marking assets to market value reduces the relevance of earnings figures and increases that of equity.

Item Type:Articles
Keywords:Valuation models, financial institutions.
Glasgow Author(s) Enlighten ID:Danbolt, Prof Jo
Authors: Danbolt, J., and Rees, W.
Subjects:H Social Sciences > HB Economic Theory
College/School:College of Social Sciences > Adam Smith Business School > Accounting and Finance
Journal Name:Review of Accounting and Finance
Copyright Holders:Copyright © 2002 Emerald
First Published:First published in Review of Accounting and Finance 1(1):5-24
Publisher Policy:Reproduced in accordance with the copyright policy of the publisher.

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