Abstract
The paper aims to explore the impact of financial risks on the firm value of banks in ASEAN-5 countries. The study used the panel data regression model to analyze the available data for 63 commercial banks in ASEAN-5 countries from 2009 to 2017, totaling 567 observations. GMM dynamic estimation was also used for robustness and comparison purposes. The financial risk was measured using the non-performing loans ratio (NPL), the loan to deposit ratio (LD), the liquid asset ratio (LATA), the cost to income ratio (CIR), and the net interest margin (NIM), while firm value was measured using the enterprise value. The study used controlled variables proxied by size, GDP growth and the inflation rate, while the correlation between credit risk and interest rate risk (CR•IR) was also determined. Given the results of the study, credit risk proxy by non-performing loans ratio has a significant positive effect on the firm value, the liquidity risk (LD) has a significant positive impact on the firm value of ASEAN banks, while LATA has a significant negative effect on the firm value. Operational risk (CIR) and interest rate risk (NIM) have a significant negative impact on the firm value of ASEAN-5 banks. Bank size and inflation rate significantly and negatively affect the firm value, while GDP growth is found to have a significant positive impact on the firm value of ASEAN-5 banks. An insignificant interaction is found between credit risk and interest rate risk (CR•IR). The GMM estimation also supported these findings. The results obtained will be an important signal for policy makers, which is useful for the effective mobilization and allocation of credits to productive areas and helps manage inherent risks. The study provides implications for all countries regarding the financial risks associated with the value of the firm. Therefore, this study offers new insights into this relationship by providing useful information to the academics, policy makers, governments, and other stakeholders and serves as a benchmark for further study in this area.
Highlights
Financial institutions are the major economic agents of change whose financial soundness is of interest to corporate investors due to their vital role in driving economic activities that would be impossible when an institution is faced with resilience and fragility
Indonesia illustrate that both liquid asset ratio (LATA) and GDP growth have a significant neg- The Arellano-Bond test’s null hypothesis for zero ative impact on firm value, while the other varia- autocorrelation states that the differenced error bles are not significant
This study introduces a new perspective on the systematic exploration of cause-and-effect relationships between financial risk components and the firm value of ASEAN-5 countries
Summary
Financial institutions are the major economic agents of change whose financial soundness is of interest to corporate investors due to their vital role in driving economic activities that would be impossible when an institution is faced with resilience and fragility. The measurement is preferred because it offers pre- NIM is the proxy for interest rate risk and is measdicted returns to investors and acquirers and costs ured by the net interest income divided by average that are useful for firm valuation that represents interest earned assets This relates to the change in the overall market value of the firm The study tends to examine SIZE denotes Natural log of bank assets; GDP dethe cause and effect of social phenomena based notes GDP growth rate; and INFL signifies inflaon how risk factors affect firm value. Less collinearity, by which the problems from omitted variables are significantly reduced
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