The effects of financial risks on firm values and an application in Turkish banking industry

Effective operation and development of national economies and global economy is strictly attached to success and strength of banking sector. Turkey's 2001 economic crisis and 2008 global economic crisis is derived from banking sector's failure. Policymakers have taken various measures to re-regulate operating of financial system and to strengthen the banks. Banks' having strong financial structures and enjoying increase in the values has vital impact on sustainable growth of both national economies and global economy. In this study, effects of financial risk types which are mostly considered by banks on bank's values have been searched. Financial data between 2010-2019 of 7 banks selected among the financial institutions that direct the financial system of Turkey, traded on BIST and evaluated to create meaningful results for the study were taken and these data were analyzed by panel data analysis method. Market value / book value (MV / BV) ratios of these 7 banks were used as dependent variables. the variables such as currency risk, interest rate risk and liquidity risk faced by these banks are used as independent variables. What makes this study unique is that it is the first study to search the effects of financial risk types on firm values in the banking sector, which has different valuation dynamics and is most exposed to the effects of financial risks. The analysis conducted within the scope of the study showed that the three independent variables, currency risk, interest rate risk and liquidity risk, have a significant and negative relationship with the market value / book value ratios of the banks.