Relationship Between Noninterest Income and Bank Valuation: Evidence from the U.S. Bank Holding Companies

This paper investigates the impact of noninterest income on bank valuation using 625 U.S. Bank Holding Companies over the period 2003-2015. We use two measures of valuation: Tobin’s q and the market-to-book ratio. Using the whole sample, we find a positive relation between noninterest income and valuation. We then divide banks in our sample into three groups based on size, and the sample period into three sub-periods. We find that noninterest income is positively related to valuation (1) for large banks in each sub-period, (2) for medium-sized banks during and after the financial crisis of 2007-2009, and (3) for small banks after the financial crisis.