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This study investigates the value relevance of performance measures in regional banks to verify the validity of the current profit and loss (P&L) statement for banks, which does not present business profits. Following previous studies, we employ a simple valuation model, including only earnings and book value of equity as explanatory variables to test the validity of the current financial reporting system. Our sample consists of all listed regional banks in Japan from 1989 to 2016. In addition to using the full sample, we test the value relevance of performance measures by dividing the sample period into Basel I and Basel II/III in terms of panel data poolability. Overall, the result shows that the value relevance of business profits of regional banks is comparable to ordinary income and net income. As the evidence implies that there is no need to retain the current form of the P&L for banks, we show four plans that provide business profits information in individual P&L statements. We then propose a tentative P&L statement form to show the calculation process of business profits explicitly in the ordinary income division.
Research papers (academic journals)
