The Research On Chinese Listed Commercial Banks’ Equity Valuation

Chinese listed commercial banks have become an important component of Chinese capital market. Capital activities become increasingly frequent among banks. Meanwhile, with the continuous opening and improvement of Chinese capital market, the value investment philosophy has been gradually accepted by Chinese investors. Therefore, it has become a very necessary problem to choose an appropriate equity valuation model for assessing the value of Chinese listed commercial banks’ equity.Firstly, this paper reviews the relevant literatures about the equity valuation model and the listed commercial banks’ equity valuation. It summarizes current situations and problems of relevant researches. Secondly, this paper discusses the characteristics of Chinese listed commercial banks’ equity valuation and introduces four major equity valuation models including: the dividend discount model; the free cash flow of equity model; the option pricing model and the residual income model. Through the comparison and analysis of above-mentioned equity valuation models, this paper concludes that residual income model is most suitable for Chinese listed commercial banks’ equity valuation theoretically. Based on those facts, this paper chooses relevant accounting data from 2007 to 2013 of Chinese listed commercial banks as samples and tests the applicability of the linear dynamic information equation of residual income model in China’s listed commercial banks. Thereafter, it makes regression analysis of the residual income model. Also, it discusses residual income model’s explanation ability to the share price of China’s listed commercial banks under different years and the issue of residual income model’s "other information" proxy variables. Through the empirical study, it finds out that the residual income model’s explanation ability to the share price of China’s listed commercial banks fluctuated from 2007 to 2013. What’s more, residual income, net assets, year, growth rate of main business are significant positive correlated to the share price. However, non-performing loan ratio is significant negative correlated to the share price. Finally, based on the conclusion of the empirical study, it puts forward relevant proposals, the shortcomings of this paper and research prospects.