The Valuation of European Financial Firms

28 Pages Posted: 9 Nov 2001

See all articles by Jo Danbolt

Jo Danbolt

University of Edinburgh Business School

Bill Rees

University of Edinburgh - Accounting and Finance

Date Written: October 2001


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.

Keywords: Valuation Models, Financial Institutions

JEL Classification: M41, G12, G20

Suggested Citation

Danbolt, Jo and Rees, William, The Valuation of European Financial Firms (October 2001). Available at SSRN: or

Jo Danbolt (Contact Author)

University of Edinburgh Business School ( email )

University of Edinburgh
29 Buccleuch Place
Edinburgh, Scotland EH8 9JS
United Kingdom

William Rees

University of Edinburgh - Accounting and Finance ( email )

29 Buccleuch Place
Edinburgh, EH8 9JS
United Kingdom
+44 131 651 5244 (Phone)


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