Credit Risk and Shareholders’ Value in a Developing Economy: Evidence from Pakistani Banking System

Journal of Economics and Behavioral Studies, 4(2), 87-95, 2012

9 Pages Posted: 1 Feb 2015

See all articles by Ahmed Arif

Ahmed Arif

Bristol Business School, University of the West of England

Afsheen Abrar

National University of Modern Languages (NUML)

Mohammad Afzal

Comsats University Islamabad

Date Written: 2012

Abstract

The present study examines the role of credit risk in value creation process in banking system of Pakistan. This study here develops a conceptual model with three antecedents to credit risk. These antecedents are loan loss provision, advances, and capital adequacy ratio. The study analyzes the impact of these antecedents on accounting return on equity (ROE) and market return on shares (ROS). The data come from 20 banks listed on Karachi Stock Exchange (KSE) for 2004-2009. The study includes panel data analysis to analyze the relationship between the selected variables. The results of this study expose a minimal role of credit risk in value creation process in banking system of Pakistan. The results further reveal that banks with higher advances in their portfolio are successful in getting the confidence of shareholders.

Keywords: Credit risk; Shareholders’ value; Banking sector; Loan loss provision; Capital adequacy ratio; Return on equity

Suggested Citation

Arif, Ahmed and Abrar, Afsheen and Afzal, Mohammad, Credit Risk and Shareholders’ Value in a Developing Economy: Evidence from Pakistani Banking System (2012). Journal of Economics and Behavioral Studies, 4(2), 87-95, 2012, Available at SSRN: https://ssrn.com/abstract=2558335

Ahmed Arif (Contact Author)

Bristol Business School, University of the West of England ( email )

Bristol, BS16 1QY
United Kingdom

Afsheen Abrar

National University of Modern Languages (NUML) ( email )

NUML H-9
Islamabad, Capital City Islamabad 44000
Pakistan

Mohammad Afzal

Comsats University Islamabad ( email )

Park Road
Chak Shahzad
Islamabad, North-West Frontier Province 44000
Pakistan

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
165
Abstract Views
872
Rank
325,881
PlumX Metrics