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This paper examines how the determinants of bank performance and profitability were affected by the recent systemic banking crisis. We explore the contemporaneous…
This paper examines how the determinants of bank performance and profitability were affected by the recent systemic banking crisis. We explore the contemporaneous determinants of U.S. regional banks’ performance and profitability before, during, and after the crisis years.
We analyze the determinants of three measures of profitability: return on assets, return on equity, and net interest margins.
We found evidence of lowered bank profitability, credit quality, and scale of lending activities well after the defined crisis period. This coincides with historical evidence that downturns associated with a financial crisis are more severe than downturns due to short-run fluctuations in the business cycle. Banks responded to the crisis by increasing their equity and liquidity levels.
This paper is the first to compare the determinants of bank profitability during the precrisis, crisis, and postcrisis periods. Our study extends previous work by using data from U.S. banks, adding coverage of the years since the banking crisis ended, and considering profitability determinants not previously explored in studies on the effects of the crisis.
Corporate controls are mechanisms that corporations use to ensure that the processes and/or outcomes of their business units meet corporate expectations. Challenges in…
Corporate controls are mechanisms that corporations use to ensure that the processes and/or outcomes of their business units meet corporate expectations. Challenges in measurement of corporate controls have led many researchers to operationalize them as part of the more ambiguous corporate effects construct, instead of addressing them separately. The purpose of this paper is to examine the significance of “fit” between corporate control mechanisms and business unit strategy in performance of business units.
The authors use ordinary least squares regression analysis on data collected between 2010 and 2012 from surveys from managers of 142 Iranian corporations and 1,822 of their subsidiaries. The authors also use financial and market data collected by an IDRO division and accessed through partnership in a joint project.
The authors found that while the fit between business unit strategy and corporate controls has a significant effect on business unit financial performance, it does not have a similar effect on market performance. The findings demonstrate that when business unit managers perceive that they are subject to a balance of strategic and financial controls with a slightly greater emphasis on strategic controls, then business units have higher financial and market performance, although the difference in financial performance is not significant.
The authors find that the misfit between corporate controls and business strategies in such cases could negatively affect the performance of the business unit. However, this research also contributes to a better understanding of the importance of strategic controls to the successful performance of business units. The findings show that while the fit between controls and strategy is most critical for achieving financial performance in business units that pursue product leadership, strategic controls play a more prominent role than financial controls in achieving higher financial or market share performance for all business units.
The findings of the propositions in this research would discourage corporations with tight financial control from engaging in acquisition of businesses considered to be product leaders in their relative product markets.
Past research focusing on the fit between corporate-level factors and business-level factors and their role on business performance are largely limited to conceptual work. The limited empirical studies completed in the past generally reduce control mechanisms to lack or absence of autonomy. This shortcoming has been mainly due to difficulties in measurement of control mechanisms. The empirical study overcomes these barriers and in doing so, reveals surprising findings related to the effectiveness of different control mechanisms.
This paper examines the profitability and performance measurement of U.S. regional banks during the period 1994–2011, using the GMM estimator technique. Our study extends…
This paper examines the profitability and performance measurement of U.S. regional banks during the period 1994–2011, using the GMM estimator technique. Our study extends prior research by including several factors not previously considered using U.S. data.
We use bank-specific, industry-specific, and macroeconomic determinants of profitability contemporaneous with our performance indicators. We follow the accounting fundamental analysis path in explaining the bank performance.
Among the performance measures, the efficiency ratio and provisions for credit losses are negatively and equity scaled by assets is positively related to profitability. However, these relationships either reverse (efficiency ratio and provisions for credit losses) or become insignificant (equity scaled by assets) when the target becomes change in profitability. The level of nonperforming assets is negatively related to profitability across all measures of profitability used. Macroeconomic variables are largely unrelated to profitability during the year they are measured. However, they have a significant relationship with earnings change measures, suggesting they have a lagged effect on profitability. The slope of the yield curve is especially strong in this regard.
We use our determinants to model changes in bank profitability one year ahead, in addition to including several factors not previously considered, using the predictive focus of the fundamental analysis research.