Determinants of Accounting -Based and Value- Based Performance Indicators: The Case of the Saudi Banks

Abstract

The study aimed to investigate determinants of both Accounting -Based and Value- Based Performance Indicators of the Saudi banks listed on the Saudi capital market during 2013-2022.The study used the panel data methodology for least squared regression models and fixed effect regression model to test the robustness of the results. The study used ROA, ROE, and EPS as proxies for accounting- based profit indicators, while the study used MVA, EVA, and Tobin’s Q as proxies for value -based performance indicators. The study used bank –specific, industry-specific and macroeconomic –specific determinants. The results of the study were mixed and more sensitive to model choices. The least squared regression models worked better than fixed effect regression models in terms of explanatory power and capturing several determinants for value -based performance indicators. However, fixed effect regression models worked better than least squared regression models as they captured the impact of risk measured by Z score as a proxy for forward-looking risk as banks with greater scores had better profits. In addition, the results showed that all independent variables were good determinants except for capital adequacy ratio and market share. In addition, there were common determinants for both types of indicators such as operating efficiency, financial leverage, and bank size. ROE was better than ROA in terms of explanatory power. In addition, the study revealed that Weak correlations were found between accounting –based and value- based indicators, and therefore, they were complementary not alternatives. The results of the study will be useful to many stakeholders such as bank management, shareholders, policy maker and external auditors.