Evaluating the impact of CAMEL variables on the share price of banks in Sub-Sahara Africa

Abstract

PURPOSE: This study aims to investigate CAMEL variables' effects on deposit money banks' share prices for twelve Nigerian banks, nine Kenyan banks, and five South African banks.

METHODOLOGY: The panel regression approach was utilised to analyse the study data. The share price was measured by the total of the daily closing share price divided by the number of trading days. Capital adequacy was proxied by the equity-to-total-asset ratio, management efficiency was measured by asset turnover, earnings quality was measured by gross profit margin, and liquidity was measured by the loan-to-deposit ratio.

FINDINGS: The findings showed that asset quality positively and significantly influenced the share prices of the South African sample but had an insignificant influence on the share prices of the Nigerian sample. The managerial efficiency significantly and positively influenced the share prices of the South African sample but had an insignificant effect on the share prices of the Kenyan and Nigerian samples. Lastly, findings showed that liquidity negatively and significantly influenced the share prices of our Kenyan and Nigerian samples but had an insignificant influence on the share prices of our South African samples.

ORIGINALITY/VALUE: The study's findings will help the management of African banks make good management decisions and provide information that will help stakeholders make better investment decisions. The study sheds new insight into the impact of CAMEL variables on the share price of banks in sub-Saharan Africa.