The risk associated with the return on equity (ROE) and its relationship with leverage, the market value of assets, capitalization, the CAMELS ratios, and stock prices, based on the experience of selected Philippine banks from 1995 through 2004

Date of Publication

2006

Document Type

Bachelor's Thesis

Degree Name

Bachelor of Science in Commerce Major in Management of Financial Institutions

Subject Categories

Finance and Financial Management

College

Ramon V. Del Rosario College of Business

Department/Unit

Financial Management

Thesis Adviser

Junette A. Perez

Defense Panel Member

Antonio R. Zamora
Elanor S. Salumbre
Katherine Delos Santos

Abstract/Summary

This paper aims to study the risk associated with the return on equity and its relationship with leverage, the market value of assets, capitalization, the CAMELS ratios, and stock prices based on the experience of selected Philippine banks for the years 1995 through 2004 using annual data. It was inspired by the study of Armen Hovakimian and Edward Kane entitled Effectiveness of capital regulation at U.S. commercial banks, 1985 to 1994. It was said in their study that capital regulation has failed to control the risk-taking behavior of banks. In other words, capitalization did not affect risk associated with bank ROE.

In this study, the proponents applied the study made by Hovakimian and Kane in the Philippine setting and found out that it did not yield the same results. The proponents' findngs, based on statistical tools such as Pearson, Spearman, Kentall tau, gamma, and canonical analysis, showed that if a bank's capital increases, its risk taking behavior or the risk associated with its ROE would automatically decline. The difference in findings can also be explained by the theory of risk and return. In the US, risk return trade off applies, that is, when there is an increase in the standard deviation, it means that there is also increase in profits or vallues. This is not true in the Philippine setting. An increase in risk does not necessarily mean that there will also be an increase in return.

The paper was divided into 7 chapters. The first chapter talked about the take off of the paper where the background of the study, the problem statement, the hypothesis statement, assumptions, scope and limitation and significance of the study were discussed. Chapter 2 spoke of the review of related literature where it gave focus on journals related to the study that were done in the past most especially Hovakimian and Kane's paper. Chapter 3 tackled the theories behind the paper, the model of how the process of studying went and the operational frameworks. Chapter 4 discussed about the methods followed by the proponents in order to achieve the results of the study. Data presentation and analysis were talked in chapter 5. The results were wrapped up in chapter 6 followed by the recommendation in chapter 7.

Abstract Format

html

Language

English

Format

Print

Accession Number

TU21271

Shelf Location

Archives, The Learning Commons, 12F, Henry Sy Sr. Hall

Physical Description

63, [60] leaves : illustrations

Keywords

Banks and banking--Philippines; Equity--Philippines

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