| The objective of this quantitative study was to analyze the influences and predictive strengths of external and internal variables on changes in the valuation of bank shares in Ghana. A non-experimental quantitative approach using multiple regression models based on the theory of Arbitrage Pricing Model (APM) was used as the research methodology and design. The population covered all publicly listed banks but with emphasis on Standard Chartered Bank (SCB) and Ghana Commercial Bank (GCB). Market to Book (M/B) ratios of banks are the criterion variables and the external predictor variables are current account balance (CAB), exchange rate ( EΔR), gross domestic product (GDP), inflation (INF), and treasury bill rate (TBR). The internal predictor variables are efficiency ratio (EFR), financial leverage ratio (FLR), return on equity ( ROE), solvency ratio (SOR), and growth in operating profits (GOP) of the banks. The results from external variables yielded R2 = 0.71, F(5,7) = 3.42, p > 0.05 for SCB and R2 = 0.31, F(5,7) = 0.62, p > 0.05 for GCB. The results from internal variables after solving for multicollinearity yielded R2 = 0.63, F(5,7) = 3.34, p > 0.05 for SCB and R2 = 0.71, F(5,7) = 4.82, p < 0.05 for GCB. Results from the combined external and internal variables after solving for multicollinearity yielded R2 = 0.84, F(7,5) = 3.80, p > 0.05 for SCB and R2 = 0.73, F(8,4) = 1.35, p > 0.05 for GCB. The R 2 showed that external variables may predict stock valuation of SCB better than the valuation of GCB while internal variables may predict the valuation of GCB better than the valuation of SCB. The author recommends: (a) the use of specific sector stock index as the criterion variable instead of the composite index; (b) that investors should put more weight on analyzing financial performances of government owned banks than macroeconomic indicators; (c) that GDP and INF are important macroeconomic factors while FLR, SOR, and ROE are important financial ratios influencing the valuation of shares in privately owned banks; and (d) further investigation on the influence of ownership and corporate governance on bank share valuation. |
