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1 – 10 of over 76000This article estimates the loan spread equation taking into account the endogenous matching between banks and firms in the loan market. To overcome the endogeneity problem, I…
Abstract
This article estimates the loan spread equation taking into account the endogenous matching between banks and firms in the loan market. To overcome the endogeneity problem, I supplement the loan spread equation with a two-sided matching model and estimate them jointly. Bayesian inference is feasible using a Gibbs sampling algorithm that performs Markov chain Monte Carlo (MCMC) simulations. I find that medium-sized banks and firms tend to be the most attractive partners, and that liquidity is also a consideration in choosing partners. Furthermore, banks with higher monitoring ability charge higher spreads, and firms that are more leveraged or less liquid are charged higher spreads.
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Jinyong Kim and Yong-Cheol Kim
U.S. bank holding companies (BHCs) have experienced dynamic changes over a period of 2000–2010. We find that the size distribution of sample banks becomes highly positively skewed…
Abstract
U.S. bank holding companies (BHCs) have experienced dynamic changes over a period of 2000–2010. We find that the size distribution of sample banks becomes highly positively skewed with a small number of big banks becoming super-sized, and these big banks tend to take extra risk by holding derivative positions for trading purposes. The ten largest risk-taking banks hold about 70% of total assets of all the sample banks in 2010. We investigate whether the risk-taking activities of the BHCs translate into higher risk-adjusted return performance. In extensive panel regression analyses, we find that the risk-taking strategies of large banks by holding derivative positions for trading purpose do not show the clear evidence of enhancing risk-adjusted performance. We find that negative impacts of extra risk-taking on the risk-adjusted performance become bigger with the size of banks.
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Peter Njagi Kirimi, Samuel Nduati Kariuki and Kennedy Nyabuto Ocharo
This study analyzed the moderating effect of bank size on the relationship between financial soundness and financial performance of commercial banks in Kenya.
Abstract
Purpose
This study analyzed the moderating effect of bank size on the relationship between financial soundness and financial performance of commercial banks in Kenya.
Design/methodology/approach
The study employed data from 39 commercial banks for ten years from 2009 to 2018. Panel data regression model was used to analyze data.
Findings
The study results established a negative moderating effect of bank size on the relationship between commercial banks' financial soundness and net interest margin (NIM) and return on assets (ROA) with the results indicating a correlation coefficient of −0.1699 and −0.218, respectively. However, an absence of moderating effect was established when return on equity (ROE) was used as a measure of financial performance.
Practical implications
The paper finding recommends that banks' management and other policy makers should consider the effect of bank size while devising financial soundness policies to ensure optimal level of banks' financial soundness aimed at improving banks' financial performance. In addition, bankers associations should come up with policies to standardize asset quality management practices to ensure continuous positive performance of the banking sector.
Originality/value
The study shows the contribution and applicability of the theory of production in the banking sector.
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Hsing-Chin Hsiao and Mei-Hwa Lin
The purpose of this paper is to examine the impact of merger and acquisition (M&As) of “second financial restructuring” (SFR) on the productivity growth of commercial banks in…
Abstract
Purpose
The purpose of this paper is to examine the impact of merger and acquisition (M&As) of “second financial restructuring” (SFR) on the productivity growth of commercial banks in Taiwan.
Design/methodology/approach
The paper uses the Malmquist productivity change index to evaluate the changes from pre-SFR to SFR period and from pre-SFR to post-SFR period. In addition, the bootstrapping regression method is applied to examine the relationship of SFR policy and productivity change.
Findings
Merged banks have improved their productivity and scale efficiency after the M&As program of SFR. In addition, the greater productivity growth of merged banks than non-merged banks is attributed to small-sized and private-voluntary merged banks. Furthermore, the small-sized merged banks have greater productivity growth and scale efficiency improvement than the big-sized merged banks, and the government-mandatory merged banks have lower productivity growth than private-voluntary merged banks after the SFR.
Research limitations/implications
This study has an academic implication for providing additional empirical evidence related to the impact of government M&As policy on bank productivity growth in the developing countries.
Practical implications
The findings on this paper have implications for financial reform policy and banking management on M&As activity, in particular, as they clarify the differential effects of big-sized vs small-sized and government-mandatory vs private-voluntary merged banks.
Originality/value
Understanding the impacts of financial reform is particularly important as the banking industry has become increasingly competitive. This paper contributes to this area by assessing the impact of the M&As policy of SFR on productivity growth and evaluating differential effects of M&As.
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This paper aims to investigate the relationship between board size and performance in a sample of 174 bank and savings‐and‐loan holding companies, over the period 1995‐2002.
Abstract
Purpose
This paper aims to investigate the relationship between board size and performance in a sample of 174 bank and savings‐and‐loan holding companies, over the period 1995‐2002.
Design/methodology/approach
In order to examine the relationship between board of directors' size and performance in the banking industry, the paper uses various statistical tools, including panel univariate analyses and panel data techniques.
Findings
Contrary to theories predicting that smaller boards of directors are more effective, increasing the number of directors in banking firms does not undermine performance. In contrast, the evidence is in favor of a positive relationship between board size and performance, as measured by Tobin's Q and the return on assets. The paper investigates whether this positive association is due to the fact that banks reduce the number of their directors in the aftermath of poor performance by testing for the relationship between board size and performance. The findings show that the number of directors leaving the board and the number of those joining the board for the first time increase following a poor performance, but the net change in board size is not affected by past performance.
Research limitations/implications
The paper recognizes that a number of factors that are not controlled for in this study might be behind the positive empirical association between board size and the performance measures used.
Practical implications
The results of this study suggest that the calls to reduce the number of directors in banks might have adverse effects on performance.
Originality/value
This paper contributes to the banking literature by investigating the relationship between an important governance mechanism, the board of directors, and performance in banking firms.
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Javier Solano, Segundo Camino-Mogro and Grace Armijos-Bravo
Banks are institutions that inject money in the economy and help to boost it when there are problems in some markets, especially in productive sectors. In this way, analysing the…
Abstract
Purpose
Banks are institutions that inject money in the economy and help to boost it when there are problems in some markets, especially in productive sectors. In this way, analysing the competition in this sector is an important tool for policymakers as non-competitive behaviour could affect the financial system and economy. The purpose of this paper is to measure the degree of competition in the Ecuadorian private banking sector divided by size, from 2000 to 2015, using panel data collected by the official regulator institution.
Design/methodology/approach
The authors applied the model proposed by Panzar and Rosse (1987) and its H-statistic using a reduced price and revenue equation estimated by pooled ordinary least squares, fixed effects, random effects, feasible generalised fixed effects and panel correction standard errors (PCSE).
Findings
The authors show that given the presence of some problems in data such as heteroskedasticity and autocorrelation, the most appropriate technique is PCSE. The authors also found robust evidence supporting that large banks compete in a monopolistic market, small and medium-sized banks operate in monopolistic competition, and Ecuadorian small, medium-sized and large banks stay in long-run equilibrium.
Originality/value
This paper contributes to the actual literature of competition degree in two ways. First, different from traditional papers, we do not control by size; so, we divided the analysis by size, because in Ecuador and also in many developing countries, bank’s competition is different for each group of size because the levels of liquidity, risk and other indicators are different from one group to another. Second, we show the robustness of the results using a scaled and unscaled equation, using many controls and using five methods to contrast the competition degree.
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Ankur Shukla, Sivasankaran Narayanasamy and Ramachandran Krishnakumar
The purpose of the paper is to explore the impact of board size on the accounting returns and asset quality of Indian banks.
Abstract
Purpose
The purpose of the paper is to explore the impact of board size on the accounting returns and asset quality of Indian banks.
Design/methodology/approach
This paper uses ordinary least squares regression, robust regression and panel data methods for estimation, based on data collected for a sample of 29 Indian banks that are listed on the National Stock Exchange (NSE) and form part of the NSE-500 index over a period of eight financial years 2009-2016. The data pertaining to the board size of the sample banks is collected from the annual reports of banks, whereas the data relating to return on assets (ROA) and ratio of the gross non-performing assets to total assets and control variables (bank age and bank size) is extracted from ACE Equity database.
Findings
This paper concludes that the size of the governing board has a positive impact on the accounting returns (measured through ROA) of the Indian banks. Further, board size is observed to be insignificant in determining the asset quality of Indian banks.
Originality/value
This paper contributes to the literature and practitioners in a number of ways. First, to the best of the authors’ knowledge, this is the first study on the impact of board size on the accounting returns and asset quality of Indian banks. The findings of the study contribute new theoretical insights to the body of knowledge on the influence of the size of the board, which may be useful for future researchers. Second, banks may enhance their financial performance by taking cognizance of the findings of this study. Finally, equity investors may make use of the findings of this article in deciding on whether to invest in a bank’s stock/lend to the bank based on board size of the bank.
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Manas Mayur and Palanisamy Saravanan
The purpose of this paper is to examine the performance implications of board size, composition and frequency of board meetings on the performance of banks.
Abstract
Purpose
The purpose of this paper is to examine the performance implications of board size, composition and frequency of board meetings on the performance of banks.
Design/methodology/approach
The performance of banks is assessed on various parameters such as return on assets (ROA), Tobin’s Q, non-performing asset ratio (NPA ratio) and the net write-off ratio (NWO ratio). The effects of changes in board size and composition and frequency of meetings on the performance of banks are investigated using feasible generalized least square (FGLS) estimation of panel data covering a time span of five years concerning 40 banks incorporated in India. Frequency of board meetings is taken as a proxy for board activity and involvement. The authors have also tested for endogeneity issues in the model.
Findings
A curvilinear relationship was found between the board size and performance of banks. The authors have modelled a cubic form of the relationship for Indian banks. The authors’ findings indicate that an increase in board size is associated with better bank performance within both low and high board size ranges. Alternatively, increased board size is negatively associated with bank performance in the intermediate board size range. The study did not find any significant relationship between performance and frequency of board meetings and board composition.
Research limitations/implications
The behavioural variables reflecting the involvement of the board have not been incorporated in the model to determine the impact of board involvement on the performance of banks owing to the availability of data. It is hoped that this paper will be useful for major regulatory bodies such as the Ministry of Corporate Affairs (MCA), Securities and Exchange Board of India (SEBI), Company Law Board (CLB) and stock exchanges in India and other emerging economies in devising listing norms and other governance-related aspects.
Originality/value
Non-linear relationships between the board size and performance are not normally prevalent in emerging economies, especially in the banking sector. However, such a relationship exists among the Indian banks. This paper is the first of its kind to identify and address the same.
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Zahra Banakar, Madjid Tavana, Brian Huff and Debora Di Caprio
The purpose of this paper is to provide a theoretical framework for predicting the next period financial behavior of bank mergers within a statistical-oriented setting.
Abstract
Purpose
The purpose of this paper is to provide a theoretical framework for predicting the next period financial behavior of bank mergers within a statistical-oriented setting.
Design/methodology/approach
Bank mergers are modeled combining a discrete variant of the Smoluchowski coagulation equation with a reverse engineering method. This new approach allows to compute the correct merging probability values via the construction and solution of a multi-variable matrix equation. The model is tested on real financial data relative to US banks collected from the National Information Centre.
Findings
Bank size distributions predicted by the proposed method are much more adherent to real data than those derived from the estimation method. The proposed method provides a valid alternative to estimation approaches while overcoming some of their typical drawbacks.
Research limitations/implications
Bank mergers are interpreted as stochastic processes focusing on two main parameters, that is, number of banks and asset size. Future research could expand the model analyzing the micro-dynamic taking place behind bank mergers. Furthermore, bank demerging and partial bank merging could be considered in order to complete and strengthen the proposed approach.
Practical implications
The implementation of the proposed method assists managers in making informed decisions regarding future merging actions and marketing strategies so as to maximize the benefits of merging actions while reducing the associated potential risks from both a financial and marketing viewpoint.
Originality/value
To the best of the authors’ knowledge, this is the first study where bank merging is analyzed using a dynamic stochastic model and the merging probabilities are determined by a multi-variable matrix equation in place of an estimation procedure.
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Purpose: The present study investigates how the performance of Greek bank branching varies when the external environment causes dramatic changes that are reflected in recession…
Abstract
Purpose: The present study investigates how the performance of Greek bank branching varies when the external environment causes dramatic changes that are reflected in recession and capital control effects.
Design/Methodology: A unique dataset of accounting Profit and Loss statements of retail branches of a systemic Greek commercial bank, closely supervised by the European Central Bank (ECB), is utilized. A profit bootstrap Data Envelopment Analysis (DEA) model is selected to measure the bank branch efficiency. The derived efficiency estimates are analyzed through a second-stage panel data regression analysis against a set of efficiency drivers related to branch profitability, diversification of income, branch size, and branch activity.
Findings: The results indicate that recession negatively affects branch efficiency in the short and long run. The occurrence of recession significantly intensifies the efficiency premium of branch profitability, reduces the efficiency premium of diversification of income (i.e., a negative efficiency effect is recorded during the early recession period), while mitigating the generally negative efficiency effect of branch size. The analysis of efficiency effects from the deep recession period that encompasses capital controls reveals the importance of diversification of income for the improvement of profit efficiency at bank branch level.
Originality/Value: This is the first branch banking study that explores branch efficiency alteration and the dynamic of branch efficiency drivers when the economy suddenly enters recession and afterwards when conditions are becoming extremely difficult and consequently capital controls are imposed on the economy.
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