Determinants of Sustainable Growth Rate and Market Value: Evidence from Saudi Arabia

The purpose of this study is to investigate the best model to predict the effect of sustainable growth rate and its determinants on the market value through relation derived through the Gordon Growth Model equation for the Saudi banks from 2010 to 2019. By applying Higgins basic model and PRAT model, the statistical results of multiple regression show that there is a positive significant effect for growth rate, ROE, profit margin, assets turnover, and financial leverage on market value, but no effect for retention rate on market value. Furthermore, the results of stepwise multiple regression show that the best statistical model for predicting market value using the Higgins basic model contains ROE after excluding the retention rate, which explains approximately 92% of the changes in the market value of Saudi banks, and the best statistical model for predicting market value using the PRAT model contains profit margin and assets turnover after excluding the retention rate and financial leverage, which explains approximately 70% of the changes in the market value of Saudi banks. By providing a research perspective on Saudi Arabia's banking industry, this study aims to fill a gap in the literature. There was no study that investi-gated that relationship by applying Higgins and PRAT models.