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1 – 10 of over 21000
Article
Publication date: 4 July 2016

Elisa Menicucci and Guido Paolucci

The purpose of this paper is to investigate the relationship between bank-specific characteristics and profitability in European banking sector to find the role of internal…

11910

Abstract

Purpose

The purpose of this paper is to investigate the relationship between bank-specific characteristics and profitability in European banking sector to find the role of internal factors in achieving high profitability.

Design/methodology/approach

A regression analysis is built on an unbalanced panel data set comprising 175 observations of 35 top European banks over the period 2009-2013. To this end, the empirical data are collected from Bankscope and a comprehensive set of internal characteristics is examined.

Findings

All the determinant variables included in the model have statistically significant impacts on European banks’ profitability. However, the effects are not uniform across profitability measures. Regression findings reveal that size and capital ratio are significant company-level determinants of bank profitability in Europe, while higher loan loss provisions result in lower profitability levels. Findings also suggest that banks with higher deposits and loans ratio tend to be more profitable but the effects on profitability are statistically insignificant in some cases.

Practical implications

This study has considerable policy implications, as the performance of the European banking sector depends on its efficiency, profitability and competitiveness. In view of these findings, some suggestions may be functional for bank regulatory authorities to intensify and sustain robustness and stability of the banking sector.

Originality/value

The results provide interesting insights into the characteristics and practices of profitable banks in Europe. Few econometric studies have empirically explored the determinants of bank profitability in Europe so far, even though similar studies have been conducted in several developed countries. Therefore, this paper tries to close an important gap in the existing literature improving the understanding of bank profitability in Europe.

Details

Journal of Financial Reporting and Accounting, vol. 14 no. 1
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 22 December 2021

Ali Saleh Alarussi and Xiaoyu Gao

This study is conducted to determine the factors that affect profitability in Chinese listed companies (by using financial ratios). Four independent variables liquidity…

2245

Abstract

Purpose

This study is conducted to determine the factors that affect profitability in Chinese listed companies (by using financial ratios). Four independent variables liquidity, intangible assets, working capital and company leverage were empirically tested for their relationships with profitability besides two control variables which are firm size and company efficiency.

Design/methodology/approach

This study used secondary data extracted manually from the annual reports of non-financial Chinese listed companies on the Shanghai stock exchange (http://www.szse.cn/); the data set covers 100 companies during the period of 2017–2019, and a random selection method was used in order to achieve credibility and fairness as much as possible.

Findings

The findings show firm size, working capital and intangible assets have positive and significant relationships with profitability [return on assets (ROA) and earnings per share (EPS)]. Positive working capital is important to lower the cost of capital and improve companies' profitability. Intangible assets are also an essential source to improve profitability due to their low costs. In addition, the findings display a negative and strong relationship between liquidity and profitability, meaning that companies suffer low profit due to inefficient use of liquid items. Interestingly, leverage, which is measured by debt ratio and leverage ratio, shows mixed results; debt ratio shows a positive and strong association with ROA but not with EPS; while leverage ratio displays a strong but negative association with ROA but not with EPS. These results confirm the inverted U-shape relationship between leverage and profitability, which depends on the balance between benefit and cost of debt.

Social implications

Profitability is also important for employees and society where business organization provides sustainability and stability for both of them. Employees can then significantly contribute to achieve higher firm's profitability by efficiently using firm's resources.

Originality/value

This study differs than previous studies in number of aspects: First, this study focuses on financial ratios to explain profitability in Chinese companies. This study provides empirical results about the factors connected to profitability and help stakeholders to make their right decisions. Second, it examines the impact of four independent factors and two control variables that some of them are new in Chinese context such as intangible assets. Third previous studies focus on financial industry such as banks; however, this study focuses on non-financial industry.

Details

International Journal of Emerging Markets, vol. 18 no. 10
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 13 August 2018

Ali Saleh Alarussi and Sami Mohammed Alhaderi

The purpose of this paper is to examine the factors affecting profitability in Malaysian-listed companies. It has been argued that profitability is the main pillar for any company…

13309

Abstract

Purpose

The purpose of this paper is to examine the factors affecting profitability in Malaysian-listed companies. It has been argued that profitability is the main pillar for any company to survive in the long run. Although profitability is the primary goal of all business ventures, scant attention has been paid to the factors that affect profitability in developing countries. This study investigates the factors affecting profitability in Malaysian-listed companies.

Design/methodology/approach

This research is based on five independent variables that were empirically examined for their relationship with profitability. These variables are: firm size (as measured by total sales), working capital (WC), company efficiency (assets turnover ratio), liquidity (current ratio) and leverage (debt equity ratio and leverage ratio). Data of 120 companies listed on Bursa Malaysia covering the period from 2012 to 2014 were extracted from companies’ annual reports. Pooled ordinary least squares regression and fixed-effects were used to analyze the data.

Findings

The findings show a strong positive relationship between firm size (total sales), WC, company efficiency (assets turnover ratio) and profitability. The results also show a negative relationship between both debt equity ratio and leverage ratio and profitability. Liquidity (current ratio) has no significant relationship with profitability.

Research limitations/implications

Due to the time limitation, the data includes only 120 companies listed in bursa Malaysia and covers the period from 2012 to 2014.

Practical implications

These results benefit internal users (such as mangers, shareholders and employees). They can realize the determinants of enhancing the profitability of their company after the depreciation of the Malaysian currency and therefore concentrate more on the factors that enhance their companies’ profitability. On the other side, other external users (such as investors, creditors, new established companies, tax authority) also may get advantages of these results. It is clear that those users concern about the profitability of companies and the determinants of their profitability after the currency’s depreciation.

Originality/value

This study differs than previous studies in many ways: first, it focuses on non-financial listed companies in Malaysia. Previous studies have concentrated on companies in the financial sector, such as banking and financial institutions or on industrial organizations. Second, this study analyzes the data in companies’ annual reports for a three-year period from 2012 to 2014. During this period, the economy in Malaysia was fluctuating due to currency depreciation. Third, the study used both return on equity and earnings per share as indicators of profitability. Fourth, the results of the study provide empirical evidence that large size firms with efficiently managed assets can improve operating income and ultimately enhance profitability. Last but not least, this study applies the resource-based theory and the trade-off theory.

Details

Journal of Economic Studies, vol. 45 no. 3
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 27 June 2018

Ajay Bhootra

The purpose of this paper is to examine the combined performance of momentum and a gross profitability-based strategy. The motivation stems from the strong performance of momentum…

1026

Abstract

Purpose

The purpose of this paper is to examine the combined performance of momentum and a gross profitability-based strategy. The motivation stems from the strong performance of momentum on the short side and profitability on the long side, suggesting a potentially superior combined strategy. Gross profitability is also a measure of firm quality, so that another motivation is to contribute to a growing literature on factor-based investing that includes momentum and quality as potential factors.

Design/methodology/approach

The empirical approach employed in the paper is standard in the asset pricing literature. The firms are sorted into portfolios based on profitability and momentum, and the combined performance is studied through independent double sorting. Both value-weighted and equally weighted returns are reported in case of key empirical results.

Findings

The combined strategy results in superior performance. Specifically, the strategy produces results 2.75 greater than the momentum strategy, and about four times as high as the profitability strategy. The strategy also has much higher Sharpe ratio that improves further when combined with size and value strategies.

Research limitations/implications

The research has significant implications for academics and practitioners alike. A new investment strategy that has not been explored in the literature is presented. The superior performance of the strategy presents a challenge for the market efficiency, and would be of interest to academics and practitioners working in the area of investment management.

Practical implications

There has been a growing interest in multi-factor investing in recent years. The paper documents that superior performance is achieved by combining two of the popular factors, namely profitability and momentum.

Originality/value

The research is the first to study the combined performance of profitability and momentum, and provide evidence on the superiority of the combined strategy.

Details

Managerial Finance, vol. 44 no. 8
Type: Research Article
ISSN: 0307-4358

Keywords

Book part
Publication date: 24 October 2019

Mohamed Rochdi Keffala

The collapse of Italian economy has coincided with the global financial crisis to which derivatives are suspected to be responsible of its propagation. For this reason, this study…

Abstract

The collapse of Italian economy has coincided with the global financial crisis to which derivatives are suspected to be responsible of its propagation. For this reason, this study aims to examine whether the use of derivatives affects the profitability of Italian banks during both the global financial crisis period and the recession period of Italian economy. To reach this goal an appropriate econometric procedure namely the dynamic Generalized Method of Moments system is applied using data from 22 Italian banks over the long period 2005–2017. A series of bank-specific indicators are used to explain the effect of overall derivatives and each derivative instrument separately on Italian banks’ profitability. The results of regressions panels indicate that in general derivatives as well as measured in the whole or splitting up in instruments specifically in forwards, options, and, in particular, swaps affect positively the profitability of Italian banks. The main conclusion is that – despite the episode of economic recession in Italy – Italian banks boost their profitability by using derivatives.

As practical contribution, policy-makers in Italy should throw out the assumption of the implication of derivatives in the fragility of the banking system. On the contrary, they should pave the way easily for Italian banks’ managers to deal with derivatives and look out for the real problems of the recent collapse of the Italian economy.

Details

Essays in Financial Economics
Type: Book
ISBN: 978-1-78973-390-7

Keywords

Book part
Publication date: 23 September 2014

Glenn Growe, Marinus DeBruine, John Y. Lee and José F. Tudón Maldonado

This paper examines the profitability and performance measurement of U.S. regional banks during the period 1994–2011, using the GMM estimator technique. Our study extends prior…

Abstract

Purpose

This paper examines the profitability and performance measurement of U.S. regional banks during the period 1994–2011, using the GMM estimator technique. Our study extends prior research by including several factors not previously considered using U.S. data.

Approach

We use bank-specific, industry-specific, and macroeconomic determinants of profitability contemporaneous with our performance indicators. We follow the accounting fundamental analysis path in explaining the bank performance.

Findings

Among the performance measures, the efficiency ratio and provisions for credit losses are negatively and equity scaled by assets is positively related to profitability. However, these relationships either reverse (efficiency ratio and provisions for credit losses) or become insignificant (equity scaled by assets) when the target becomes change in profitability. The level of nonperforming assets is negatively related to profitability across all measures of profitability used. Macroeconomic variables are largely unrelated to profitability during the year they are measured. However, they have a significant relationship with earnings change measures, suggesting they have a lagged effect on profitability. The slope of the yield curve is especially strong in this regard.

Originality

We use our determinants to model changes in bank profitability one year ahead, in addition to including several factors not previously considered, using the predictive focus of the fundamental analysis research.

Article
Publication date: 1 December 2008

Husain AL‐Omar and Abdullah AL‐Mutairi

This paper investigates the impact of bank‐specific determinants on bank’s profitability in the Kuwaiti banking sector for the period 1993‐2005. In order to achieve this purpose…

1954

Abstract

This paper investigates the impact of bank‐specific determinants on bank’s profitability in the Kuwaiti banking sector for the period 1993‐2005. In order to achieve this purpose, a pooled annual data for seven national commercial banks is used to estimate a five variables model by the seemingly unrelated regression technique. The results indicate that equity ratio, loan‐assets ratio, operating expenses ratio, and total assets explain about 67% of the variation in return on assets (ROA). However, the results indicate that loan‐assets ratio, and operating expenses ratio are statistically insignificant. Accordingly, the results stress the need for improving capital adequacy and reducing the ratio of non‐interest assets as a way to improve profitability. The positive impact of the size variable indicates scale efficiency meaning that there is a potential for higher profits as the size of these banks increases.

Details

Journal of Economic and Administrative Sciences, vol. 24 no. 2
Type: Research Article
ISSN: 1026-4116

Keywords

Open Access
Article
Publication date: 8 November 2018

Rohit Bansal, Arun Singh, Sushil Kumar and Rajni Gupta

The purpose of this paper is to quantify several measures to examine the determinants of profitability for the listed Indian banks. The authors include both public sector (PSUs…

5740

Abstract

Purpose

The purpose of this paper is to quantify several measures to examine the determinants of profitability for the listed Indian banks. The authors include both public sector (PSUs) and private sector’s banks in the study. The authors have taken all the banks that are registered on the Bombay stock exchange (BSE) in the sample. This paper also intends to identify the association between the net profit margin (PM) and return on assets (ROA) with the several other independent variables of the Indian banking sector including private banks and public banks over the past six years starting from April 1, 2012 to March 31, 2017. Therefore, a sample of 39 listed banking companies and total 195 balanced observations are selected for the analysis purpose.

Design/methodology/approach

The authors have used profitability as a dependent variable represented by net PM, ROA and several financial ratios as independent variables. Financial statement and income statement of all listed banks were obtained from BSE and particular company’s website. Panel data regression has been analyzed with both the descriptive research techniques, i.e., fixed effects and random effects. The authors also verified both panel techniques with Hausman’s specification test, which is a widely used procedure for selecting a panel effect. The authors applied PP – Fisher χ2, PP – Choi Z-statistics and Hadri to testing whether the data set is free from unit root problem and data set is a stationary series.

Findings

Results imply that interest expended interest earned (IEIE) and credit deposit ratio (CRDR) reduced the profitability of private banks in India. IEIE, CRDR and quick ratio (QR) reduced the profitability of public banks in India, while cash deposit ratio (CDR) and Advances to Loan Funds (ALF) increased the effectiveness of public banks. Under the total banks IEIE, CRDR reduced the profitability, on the other side, CDR, ALF and Total Debt to Owners Fund (TDOF) increased the profitability of total banks in India. Under the dependency of ROA, CRDR and TDOF reduced the return of private banks in India, while CDR, ALF and QR enhanced the profitability of private banks.

Originality/value

No variables found significant under public banks while taking ROA as a dependent variable. Under the overall banking data, CRDR reduced the profitability. On the other side, capital adequacy ratio and ALF increased the profitability of total banks in India. The findings of this study will support policy creators, financial executives and investors in constructing investment decisions.

Details

Asian Journal of Accounting Research, vol. 3 no. 2
Type: Research Article
ISSN: 2443-4175

Keywords

Article
Publication date: 15 February 2013

Shaista Wasiuzzaman and Umadevi Nair Gunasegavan

The aim of this paper is to analyze the differences in bank characteristics of Islamic and conventional banks in Malaysia, especially when it comes to their profitability, capital…

8925

Abstract

Purpose

The aim of this paper is to analyze the differences in bank characteristics of Islamic and conventional banks in Malaysia, especially when it comes to their profitability, capital adequacy, liquidity, operational efficiency and asset quality are also considered. Corporate governance issues and economic conditions are also included in the analysis.

Design/methodology/approach

A total of 14 banks (nine conventional and five Islamic) were considered over the period of 2005‐2009. Three stages of analysis were performed. First, descriptive statistics were computed to understand the differences in characteristics of the two types of banks. Next, to determine whether these differences were significant, independent t‐tests were carried out on each variable. Finally, regression analysis was carried out to analyze the effect of the variables on bank profitability.

Findings

It is found that the return on average assets, bank size and board size values of conventional banks was higher compared to Islamic banks. The other variables – operational efficiency, asset quality, liquidity, capital adequacy and board independence – were higher for Islamic banks. Significant differences between the two bank types were found for all the variables, except for profitability and board independence. All variables except for liquidity, board characteristics and type of bank, were found to be highly significant in affecting profitability.

Originality/value

This paper looks at the differences between Islamic and conventional banking systems in Malaysia. Contrasting results were found for the independent t‐tests and regression analysis, which makes it an interesting study that should be pursued further.

Details

Humanomics, vol. 29 no. 1
Type: Research Article
ISSN: 0828-8666

Keywords

Open Access
Article
Publication date: 2 August 2022

Saima Mehzabin, Ahanaf Shahriar, Muhammad Nazmul Hoque, Peter Wanke and Md. Abul Kalam Azad

The Asian banking system has been appreciated with many distinct qualities including consistent in profitability. Many studies have examined the profitability of Asian banking…

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Abstract

Purpose

The Asian banking system has been appreciated with many distinct qualities including consistent in profitability. Many studies have examined the profitability of Asian banking sector from diverse perspectives. However, studies on bank profitability in connection to the capital structure, operating efficiency and non-interest income are only a few. This study investigates the influence of capital structure as estimated by leverage ratio and long-term debt, operating efficiency and non-interest income on the profitability of the banking industry in 28 countries of Asia.

Design/methodology/approach

This paper utilizes fixed effect regression model by involving panel data with sample of 492 banks from 28 countries of Asia for the time span of 15 years from 2004 to 2018.

Findings

The results confirm that an increase in total debt ratio increases the profit margin of the bank as supported by the agency cost theory, suggesting that the debt financing increases the profitability of the firm. In addition, the findings reveal that lowering the operating expenses and managing of costs effectively can boost the profitability of bank. Furthermore, non-interest income plays a vital role when the interest rates are lower. Hence the study suggests that a careful investment in this sector can generate income as well as increase the profit margin of the banking arena.

Originality/value

The paper examines the profitability of bank by including impact of leverage ratio and long-term debt as a measure of capital structure along with the influence of operational efficiency and non-interest income which contributes to the understanding of the existing literature.

Details

Asian Journal of Economics and Banking, vol. 7 no. 1
Type: Research Article
ISSN: 2615-9821

Keywords

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