Proceedings of the International Conference on Intellectuals’ Global Responsibility (ICIGR 2022)

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Valuing Commercial Banks in Indonesia: FCFE Model Outperforms DDM Model

Authors
Wynne Kusuma Tan1, *, Yu-Che Wang1
1Chinese Culture University, Taipei, Taiwan
*Corresponding author. Email: kusumawynne@yahoo.co.id
Corresponding Author
Wynne Kusuma Tan
Available Online 22 May 2023.
DOI
10.2991/978-2-38476-052-7_71How to use a DOI?
Keywords
Valuation Model; FCFE Model; Dividend Discount Model; Intrinsic Value; Market Value
Abstract

This article aims to compare the effectiveness of two valuation models, the free cash flow to equity (FCFE) model and the dividend discount model (DDM), in valuing commercial banks listed on the LQ45 index on the Indonesia Stock Exchange. The study’s sample includes five commercial banks, namely BBCA, BBRI, BMRI, BBNI, and BBTN. The research used qualitative secondary data from financial reports of the selected banks, the Indonesia Stock Exchange website, and Bank Indonesia. The study’s findings suggest that both models are useful for valuing commercial banks in Indonesia. However, the FCFE model was found to provide a more precise estimation of actual market values for the selected banks. The results also indicate the potential for investors to take advantage of the growth in the banking sector, as indicated by the rising prices of bank stocks. The study’s implications suggest that investors may use the FCFE model to make informed investment decisions and maximize their gains from trading bank stocks on the Indonesia Stock Exchange.

Copyright
© 2023 The Author(s)
Open Access
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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Volume Title
Proceedings of the International Conference on Intellectuals’ Global Responsibility (ICIGR 2022)
Series
Advances in Social Science, Education and Humanities Research
Publication Date
22 May 2023
ISBN
978-2-38476-052-7
ISSN
2352-5398
DOI
10.2991/978-2-38476-052-7_71How to use a DOI?
Copyright
© 2023 The Author(s)
Open Access
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

Cite this article

risenwbib
TY  - CONF
AU  - Wynne Kusuma Tan
AU  - Yu-Che Wang
PY  - 2023
DA  - 2023/05/22
TI  - Valuing Commercial Banks in Indonesia: FCFE Model Outperforms DDM Model
BT  - Proceedings of the International Conference on Intellectuals’ Global Responsibility (ICIGR 2022)
PB  - Atlantis Press
SP  - 651
EP  - 659
SN  - 2352-5398
UR  - https://doi.org/10.2991/978-2-38476-052-7_71
DO  - 10.2991/978-2-38476-052-7_71
ID  - Tan2023
ER  -