Franchise Value of International Banks

The aim of this dissertation is to examine the factors influencing the franchise value of international banks in the long run. Tobin’s Q ratio (i.e., simplified version, Price to Book value) is applied to measure the franchise value on a dataset of 40-year performance (1981-2021) of the Global Systematic Important Banks (G-SIBs). Factors including the macro, operational, and business factors are analyzed using the fixed effect linear regression models to identify their correlations with the franchise value. The findings indicate that macro factors, such as interest rate, globalization cycle, pattern of global value chain, and stock market performance play a vital role in determining international banks’ franchise value. Macro factors play a more important role than operational factors such as leverage ratio and risk appetite, as well as business scope of a bank measured by business diversification and the scale of business. An analysis of a smaller sample indicates that investment in technology is another main factor driving the franchise value of international banks. In addition, peer group comparison of similar banking models is also conducted for universal banks, investment banks, and Japanese banks separately. Finally, two case studies of the failures of Silicon Valley Bank and Credit Suisse in 2023 are discussed to echo the rationale drawn from the empirical analyses of G-SIB banks.