The Validity of P/E Ratio Valuation: Evidence from A-share Listed Bank Companies

Abstract

Contemporarily, financial development with Chinese characteristics has been the core of the development of Chinese society. Meanwhile, the banking industry was the core of its financial system for more than ten years. With the adjustment of China’s policy in recent years, more and more urban and rural commercial banks have been listed in the A-share market. By the end of 2022, there are 42 listed banks in A-share market and 11 more companies were on the waiting list. The P/E ratio, as an index that also refers to stock price and financial report data, has been the focus of domestic and overseas capital markets. With the maturity of China’s capital market and the listing of more and more banks in the A-share market, evaluating the actual value of listed companies is crucial. By analyzing the cross-sectional 2021 financial reporting data of listed bank companies, this paper examines the relevant economic data that affect the P/E ratios of listed bank companies in China. According to the analysis, it provides reasonable suggestions for the decision-making of investors and the pricing of the initial public offering of the bank companies to be listed. In general, these results provide a basis for guiding the effectiveness of P/E valuation of listed banking companies in China, especially the pricing of IPOs of urban and rural commercial banks.