Determinants of Commercial Banks' Residual Profitability: An Industry Approach

Spanish Journal of Finance and Accounting, Vol. 37, No. 139, pp. 469-500, September 2008

Posted: 27 Jul 2009 Last revised: 27 Sep 2009

See all articles by Borja Amor-Tapia

Borja Amor-Tapia

Universidad de León

Maria T. Tascón

Universidad de León

José L. Fanjul

Universidad de León

Date Written: July 27, 2008

Abstract

Using a contextual approach on a sample of commercial banks from the OECD countries, this study identifies some drivers of abnormal ROE (residual income scaled by beginning-of-period book value of equity). We select the key theoretical variables from the banking and the accounting literature and analyze the impact on the prediction of future abnormal ROEs. After regressing the following year's abnormal ROE on those variables, we verify that some of them, related to the competitiveness of banks and the accounting system, play a determinant role. Our evidence suggests that the identification of ‘other information’ factors, by a contextual approach, might improve the empirical use of the Ohlson Model in commercial banks, especially when they act in competitive environments and/or relevant intangibles are not captured by accounting.

Keywords: residual income model, abnormal earnings, equity valuation, contextual approach, financial firms

JEL Classification: D40, G12, M40, G24

Suggested Citation

Amor-Tapia, Borja and Tascon, Maria Teresa and Fanjul, José L., Determinants of Commercial Banks' Residual Profitability: An Industry Approach (July 27, 2008). Spanish Journal of Finance and Accounting, Vol. 37, No. 139, pp. 469-500, September 2008, Available at SSRN: https://ssrn.com/abstract=1439761

Borja Amor-Tapia (Contact Author)

Universidad de León ( email )

Leon, 24071
Spain
(+34) 987291000 (Phone)

Maria Teresa Tascon

Universidad de León ( email )

Leon, 24071
Spain

José L. Fanjul

Universidad de León ( email )

Leon, 24071
Spain

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