Citation

Arhinful, Richard and Gyamfi, Bright Akwasi and Mensah, Leviticus and Obeng, Hayford Asare (2025) Non-Performing Loans and Their Impact on Investor Confidence: A Signaling Theory Perspective—Evidence from U.S. Banks. Journal of Risk and Financial Management, 18 (7). p. 383. ISSN 1911-8074

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Abstract

Bank operations are contingent upon investor confidence, particularly during periods of economic distress. If investor confidence drops, a bank faces difficulties obtaining money, higher borrowing costs, and lower stock values. Non-performing loans (NPLs) potentially jeopardize a bank’s long-term viability and short-term profitability, and investors are naturally wary of institutions that pose a high credit risk. The purpose of the study was to explore how non-performing loans influence investor confidence in banks. A purposive sampling technique was used to identify 253 New York Stock Exchange banks in the Thomson Reuters Eikon DataStream that satisfied all the inclusion and exclusion selection criteria. The Common Correlated Effects Mean Group (CCEMG) and Generalized Method of Moments (GMM) models were used to analyze the data, providing insight into the relationship between the variables. The study discovered that NPLs had a negative and significant influence on price–earnings (P/E) and price-to-book value (P/B) ratios. Furthermore, the bank’s age was found to have a positive and significant relationship with the P/E and P/B ratio. The moderating relationship between NPLs and bank age was found to have a negative and significant influence on price–earnings (P/E) and price-to-book value (P/B) ratios. The findings underscore the importance of asset quality and institutional reputation in influencing market perceptions. Bank managers should focus on managing non-performing loans effectively and leveraging institutional credibility to sustain investor confidence, particularly during financial distress.

Item Type:	Article
Uncontrolled Keywords:	Investor confidence, non-performing loans, price–earnings ratio, price-to-book value ratio, return on equity
Subjects:	H Social Sciences > HG Finance > HG1501-3550 Banking > HG1641-1643 Bank loans. Bank credit. Commercial loans
Divisions:	Faculty of Management (FOM)
Depositing User:	Ms Suzilawati Abu Samah
Date Deposited:	27 Aug 2025 05:34
Last Modified:	04 Sep 2025 09:17
URII:	http://shdl.mmu.edu.my/id/eprint/14469

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