1.05 Bank’s fundamental accounting variables and their stock return.

Autores: C. Mellado Cid, J. Arias Moya

ABSTRACT
The aim of this study is to examine if the accounting data can explain cross-sectional variations in stock returns in the US banking industry. Based on previous research such as Chen and Zhang (2007), Cooper et al., (2003), among others, we identified a number of accounting variables specific to the banking industry that could explain the cross-sectional variation in stock returns, such as income to non-interest revenue, total loan to assets, loan loss reserves to total loans.

We find that 5 of the variables are significant in univariate analysis, only return on loan and loan loss reserve to total loan are not significant. In a multivariate analysis, we find that noninterest income to total income, loan to total asset, loan to deposit, expenses to revenue, and profitability are significant. The loan to deposit, expense to revenue, and profitability are variables not used by Cooper et al. (2003). Furthermore, loan to deposit and profitability, and noninterest income to total income are significant in explaining the cross sectional abnormal return, so it will be interesting to test if those variables and others that showed less consistency in explaining banks stock return, but more statistically significance, have the power to predict in the cross section of bank stock returns
Keywords: Bank Stock Return; bank’s specific accounting ratios.