Abstract
This paper aims to examine the shareholder value efficiency and build a Shareholder Value Index for Saudi banks between 2010 and 2014. Shareholder value efficiency is measured using value based performance metrics and binary logistic regression model was adopted to develop the Shareholder Value Index for Saudi banks. The Shareholder Value Index developed provides the probability of a bank’s competence to create/erode shareholders' wealth. The study finds that Economic Value Added (EVA) is the value-based performance metric that comes closer than any other to capture the true Economic Profit and the market performance (Market Value Added) of banks. Positive EVA of most of the commercial banks denote that they are more Shareholder value efficient than Islamic banks. High Market Value Added (MVA) represents a highly positive outlook of the investors on the Saudi banks' performance. Value creation is significantly linked to high Net Operating Profit After Tax and a low cost of capital. The most significant observation is that not all banks with highest capital employed are the highest value creators. The Shareholder Value Index developed indicate that majority of Saudi banks demonstrate a higher probability of shareholder value creation. Few Islamic banks showed a less probability of wealth creation for the period of study and are predicted to improve the shareholder value creation ability through their aggressive strategy in the future.
Highlights
Banking Sector in Saudi Arabia has made a significant contribution to the economic development of the Kingdom
It is observed that banks such as Alrajhi, National Commercial Bank (NCB), Samba Financial Group (SAMBA) recorded the highest Net Income (NI) whereas Albilad, Alinma, Aljazaria showed the lowest NI during the period of study
NCB, Alrajhi, Riyad bank had deployed the highest assets into their operations, while Albilad, Alinma, Aljazaria, Saudi investment bank (SIB) had invested the lowest assets in banking operations
Summary
Opening up the market to Foreign Investors is likely to lead to inclusion into the MSCI emerging market index by mid-2017 (Note 1). Given this scenario, Banks are realizing that accounting based measures are often poor indicators of value creation and are searching for appropriate value based measures of corporate performance. Banks are realizing that accounting based measures are often poor indicators of value creation and are searching for appropriate value based measures of corporate performance This would in turn improve the valuation process adopted by analysts
Sign-in/Register to view highlights & summary Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
