CAMEL Ratios and Market Profitability: A Study on Banking Sector in Bangladesh

Published Online: 19 June, 2023 || Published in Print: 30 June, 2023

Authors

  • Imran Mahmud* Bangladesh Institute of Capital Market, Dhaka, Bangladesh Author

DOI:

https://doi.org/10.54728/JFMG-202209-00062

Keywords:

Tobin’s Q, CAMEL, Fixed Effect model, Random Effect model, PCSE model, Banking sector

Abstract

The objective of the study is to identify whether CAMEL ratios can predict the market profitability of listed banks in Bangladesh. To achieve this, a sample of 25 companies, for the period of 2010 to 2021, is used. Two dependent variables- Tobin’s Q and Adjusted Return are tested using fixed effect and random effect models respectively. Panel Corrected Standard Error (PCSE) model was also tested and interpreted to measure the reliability of the results. It is extrapolated that the CAMEL rating has a greater impact on Tobin’s Q (R2 value of 98%) than Adjusted Return with an R2 value of 30% only. The impact of CAMEL ratios differs depending on the measures of market profitability taken in the study. Only earning quality and management efficiency were found to be significant for both measures of market profitability. Additionally, COVID-19 was found to have a significant impact on both measures of market profitability. It was also conspicuous that earning quality and capital adequacy conform to theoretical sign when regressed with both Tobin’s Q and Adjusted Return.

Downloads

Published

2023-06-19

Issue

Section

Articles

How to Cite

Imran Mahmud*. (2023). CAMEL Ratios and Market Profitability: A Study on Banking Sector in Bangladesh: Published Online: 19 June, 2023 || Published in Print: 30 June, 2023. Journal of Financial Markets and Governance, 2(1), 111-125. https://doi.org/10.54728/JFMG-202209-00062