The Credit Quality and the Market- Based Performance of Banks: A Comparative Study
Dr. Salah Ahmed ORABY

This research aims at measuring the relationship between the credit quality measured by both non-performing loans % (NPL) and provisions for loan losses%(PLL) as independent variables and the market performance of banks measured by share prices.The sample study includes 11 Saudi listed banks in Saudi stock exchange and 15 banks listed in Jordanian stock from 2011 to 2016. This study used regression analysis and correlation analysis to analyze the quarterly data to test research hypotheses.Results of the Saudi case indicated that neither NPL% nor PLL has a statistically significant relationship with share prices and that can be interpret that investor in Saudi Arabia ignore both NPL and PLL when pricing shares of banks. On the other hand, results of the Jordanian case indicated that only PLLhave a statistically positive impact on share prices of it can be said that investors in Jordanian capital market look at part of provisions for PLL as a source of potential profit in future because they believe that PLL contain discretionary component used to manage earnings and used as signalingtool to shareholderson future expected cash flows. Also results indicated that both NPL and PLL are alternative measures should not be used together in the same model as predictors and PLL is better than NPL because PLL reflects both specific and general risk.

Full Text: PDF     DOI: 10.15640/ijat.v6n1a6