
Proposed Model for Forecasting the Intrinsic Value of Commercial Applied to Commercial Banks Listed on the Bahrain Stock Exchange
Author(s) -
Tharwah Shaalan
Publication year - 2018
Publication title -
accounting and finance research
Language(s) - English
Resource type - Journals
eISSN - 1927-5994
pISSN - 1927-5986
DOI - 10.5430/afr.v7n4p91
Subject(s) - intrinsic value (animal ethics) , panel data , capital structure , profitability index , economics , capital requirement , stock exchange , book value , variables , valuation (finance) , leverage (statistics) , business , operating leverage , equity (law) , econometrics , cash flow , finance , actuarial science , microeconomics , profit (economics) , computer science , debt , philosophy , earnings , machine learning , environmental ethics , political science , law
Here we propose a model to evaluate and forecast the intrinsic value of banks, a more appropriate approach as opposed to considering their valuation based on market value. This is because the capital markets in the Arab region, when viewed within the framework of a set of explained variables, prove to be inefficient. These variables include: profitability, capital adequacy, weights of the bank assets that indicate the associated size and various risks according to the Basel committee’s two and the operational efficiency variable. The last variable in question reflects the efficiency of the bank’s internal operations, and the total investments of a commercial bank as proxy of the size of bank assets and financial leverage: the impact of the financial risk on the intrinsic value of the commercial bank. The study used the multi-regression panel data to forecast the value of banks using cash flows approach discounted at the weighted average cost of capital of both equity and borrowed capital. The study found that the three variables: capital adequacy, operational efficiency, and financial leverage explained the intrinsic value of Bahrain commercial banks. The study structure included the following: introduction, review of the relevant literature, hypotheses, methodology and data, mathematical model, empirical results, conclusion, and finally recommendations.