Investors' Perception of Bank Risk Management: Multivariate Analysis Techniques

Document Type : Original Article


1 PHD student in Finance, Central Tehran Branch, Islamic Azad University

2 Department of Financial Management, Central Tehran Branch, Islamic Azad University, mir. (Corresponding author)

3 Department of Financial Management, Islamshahr Branch, Islamic Azad University


According to the nature of their activities, banks are exposed to various types of risks. Hence, risk management is at the heart of financial institutions management. In this study, we intend to summarize the information content of bank financial statements on diverse risks faced by banks and then determine how stock markets react to bank's risk management behavior. The methodology used in this study is the Principal Component Analysis (PCA) and Discriminant Analysis (DA). In this research, we evaluate the status of risk management in listed banks on Tehran Stock Exchange through financial statements analysis and then investigate its relationship with banks' stock returns to determine whether capital market participants take the status of risk management into account in their pricing decisions or not. The results show that provisions taken by banks have a meaningful relationship with the banks' stock returns. However, capital adequacy, net interest margin, and net margin of non-interest income have no significant relationship with stock returns.


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