Description:
In this paper we examine the evolution of the market-to-book ratio of European banks before, during and after the Global Financial Crisis (GFC) and the Euro sovereign debt crisis. We employ a panel of 215 listed European banks, which we analyse over the period 2006-2020. Clearly, their market-to-book ratio has been substantially, and persistently, lower in recent time when compared to its pre-crisis levels. To better evaluate this phenomenon, we use several blocks of bank-specific and country-specific indicators, including ESG variables. We find bank fundamentals, such as return on equity and volatility of stock returns to be important determinants of the market-to-book ratio. We also find that the valuation of large banks is penalized more, relative to that of smaller ones. On the country-specific front, we find GDP growth to be significant, as well as the relative size of the banking sector. As far as ESG is concerned, we find that although overall ESG does not affect valuations, its sub-pillars and in particular corporate governance do