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Working Paper
Does Scale Matter in Community Bank Performance? Evidence Obtained by Applying Several New Measures of Performance
SUPERSEDES WP16-15 We consider how size matters for banks in three size groups: banks with assets of less than $1 billion (small community banks), banks with assets between $1 billion and $10 billion (large community banks), and banks with assets between $10 billion and $50 billion (midsize banks). Community banks have potential advantages in relationship lending compared with large banks. However, increases in regulatory compliance and technological burdens may have disproportionately increased community banks? costs, raising concerns about small businesses? access to credit. Our evidence ...
Conference Paper
Managerial incentives and the efficiency of capital structure
Working Paper
Do bankers sacrifice value to build empires? managerial incentives, industry consolidation, and financial performance
Bank consolidation is a global phenomenon that may enhance stakeholders? value if managers do not sacrifice value to build empires. We find strong evidence of managerial entrenchment at U.S. bank holding companies that have higher levels of managerial ownership, better growth opportunities, poorer financial performance, and smaller asset size. At banks without entrenched management, both asset acquisitions and sales are associated with improved performance. At banks with entrenched management, sales are related to smaller improvements while acquisitions are associated with worse performance. ...
Conference Paper
Measuring the efficiency of capital allocation in commercial banking
Conference Paper
Estimating managers' utility-maximizing demand for agency goods
An empirical model of managers? demand for agency goods is derived and estimated using the Almost Ideal Demand System of Deaton and Muellbauer (AER 1980). As in Jensen and Meckling (JFE 1976), we derive managers? demand for agency goods by maximizing a managerial utility function where managers allocate the potential value of their firm?s assets to the consumption of agency goods and the production of market value (which, given their ownership stake, determines their wealth). The utility function is defined over wealth and the value of agency goods and is conditioned on managers? holdings of ...
Working Paper
CONSUMER LENDING EFFICIENCY:COMMERCIAL BANKS VERSUS A FINTECH LENDER
We compare the performance of unsecured personal installment loans made by traditional bank lenders with that of LendingClub, using a stochastic frontier estimation technique to decompose the observed nonperforming loans into three components. The first is the best-practice minimum ratio that a lender could achieve if it were fully efficient at credit-risk evaluation and loan management. The second is a ratio that reflects the difference between the observed ratio (adjusted for noise) and the minimum ratio that gauges the lender?s relative proficiency at credit analysis and loan monitoring. ...
Working Paper
Recovering risky technologies using the almost ideal demand system: an application to U.S. banking
Using modern duality theory to recover technologies from data can be complicated by the risk characteristics of production. In many industries, risk influences cost and revenue and can create the potential for costly episodes of financial distress. When risk is an important consideration in production, the standard cost and profit functions may not adequately describe the firm's technology and choice of production plan. In general, standard models fail to account for risk and its endogeneity. The authors distinguish between exogenous risk, which varies over the firm's choice sets, and ...
Conference Paper
Efficient banking under interstate branching