Analyzing the effect of bank performance on stock price returns: empirical evidence from European high-income countries

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Banking performance has developed rapidly accompanied by technological advances that can simplify banking services and transactions by adopting a priority scale aimed at identifying dynamically moving stock price returns and exploring banking quality and capacity as a manifestation of well-organized bank performance. This research aims to determine the effect of bank performance on stock price returns in European high-income countries. The analysis of the panel data method using the Common Effect Model (CEM) approach is considered capable of answering the objectives of this research. Research data were obtained from the World Bank and International Monetary Fund for 10 European countries (Denmark, Finland, France, Italy, Norway, Poland, Spain, Sweden, Switzerland and the UK) from 2002 to 2021. The research results prove that return on assets significantly affects stock price returns, while bank deposits to GDP, bank branches per 100,000 adults, and bank Z-score do not significantly affect stock returns. The control variables: exchange rate and interest rates do not significantly affect stock prices. The results of this research provide empirical evidence that bank performance through return on assets tends to have a positive impact on share price returns, which indicates that investors pay attention to this indicator. These findings underline the importance of bank management, and macroeconomic conditions and monetary policy must be considered in a broader context to provide long-term benefits for shareholders through overall market trust mechanisms so that high stock price returns can be achieved.

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    • Table 1. Bank performance variables
    • Table 2. Chow test
    • Table 3. Hausman test
    • Table 4. Lagrange multiplier test
    • Table 5. Panel data estimation result
    • Conceptualization
      Zefri Yenni, Eliza, Alpon Satrianto, Akmil Ikhsan
    • Data curation
      Zefri Yenni, Eliza, Alpon Satrianto, Akmil Ikhsan
    • Formal Analysis
      Zefri Yenni, Eliza, Alpon Satrianto, Akmil Ikhsan
    • Funding acquisition
      Zefri Yenni, Eliza
    • Investigation
      Zefri Yenni, Eliza, Alpon Satrianto, Akmil Ikhsan
    • Project administration
      Zefri Yenni, Eliza
    • Software
      Zefri Yenni, Eliza, Alpon Satrianto, Akmil Ikhsan
    • Supervision
      Zefri Yenni
    • Validation
      Zefri Yenni, Eliza, Alpon Satrianto, Akmil Ikhsan
    • Writing – original draft
      Zefri Yenni, Akmil Ikhsan
    • Writing – review & editing
      Eliza, Alpon Satrianto, Akmil Ikhsan
    • Methodology
      Alpon Satrianto, Akmil Ikhsan
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Banks and Bank Systems
Banks and Bank Systems