Frontier efficiency, capital structure, and portfolio risk: An empirical analysis of U.S. banks

Ding, Dong; Sickles, Robin C.

doi:10.1016/j.brq.2018.09.002

Cited by 38 publications

(53 citation statements)

References 33 publications

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“…Enlarged market share requires coordination and monitoring, increasing cost for banks. In addition, diseconomies of scale may occur as enlarged market share could push banks to increase beyond their ideal operational scale size (Ding & Sickles, 2018). In view of this, it is important that regulators promote competition in the industry.…”

Section: Resultsmentioning

confidence: 99%

“…As a measure of performance, enhanced cost efficiency may indicate good performance by managers. However, managers may commit inadequate resources to underwriting and monitoring of loans, realizing cost benefits in the short run but endangering it in the long run (Ding & Sickles, 2018). In view of this, future research should examine behavioural factors that influence managers' cost efficiency decisions.…”

Section: Resultsmentioning

confidence: 99%

“…Interestingly, studies have examined banking industry efficiency through the lens of technical efficiency (e.g., Horvatova, 2018;Saha, Ahmad, & Dash, 2015;Moradi-Motlagh & Saleh, 2014;Banker, Chang & Lee, 2010;Casu & Giradone, 2006), and cost and allocative efficiencies (e.g., Kasman & Carvallo, 2013;Akeem & Moses, 2014;Kumar, 2013;Feng & Serletis, 2009;Hartman, Storbeck, Byrnes, 2001). In addition, the industry has been examined in single country studies (e.g., Ding & Sickles, 2018;Hassan & Jreisat, 2016, Vu & Turnell, 2011, cross-country studies (e.g., Rekik & Kalai, 2018;Banerjee, 2013;Kasman & Carvallo, 2013), and under approaches that include ratio analysis (e.g., Klaassen, & van Eeghen, 2015;Kumbirai & Webb, 2010) and frontier analysis (e.g., Moradi-Motlagh, Valadkhani, & Saleh, 2015;Weill, 2004;Berger & Humphrey, 1997). Typically, ratio analysis studies assess profitability, liquidity, solvency, and leverage ratios, declaring improvements in these ratios over time as indicative of good performance (Kumbirai & Webb, 2010).…”

Section: Review Of Literaturementioning

confidence: 99%

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Cost Efficiency Determinants: Evidence from the Canadian Banking Industry

Oredegbe¹

2019

IJBM

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This study examines the cost efficiency of the banking industry in Canada. Utilizing 12 years of data (i.e., 2006 to 2017), and a two-stage data envelopment analysis (DEA), it provides insight on the determinants of the industry’s cost efficiency. It finds that the industry is cost inefficient, and that it could reduce costs by 11.52 percent. The cost inefficiency is due to technical and allocative inefficiencies, with technical inefficiency playing a dominant role. The technical efficiency decomposition shows that pure technical efficiency improved, but the scale efficiency deteriorated. The analysis of the determinants of cost efficiency reveals that deposit conversion into loans, high capitalization, and managerial tolerance for increase in administrative expense drive cost efficiency. On the other hand, market power and diversification diminish cost efficiency. In addition, the impact of profitability and credit risk are inconsequential to cost efficiency. This study contributes to literature by providing insights unique to Canada. Managers in the industry, policy makers, and regulators can point to these findings as empirical evidence supporting measures aimed at increasing the industry’s competitiveness and resilience.

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Section: Resultsmentioning

confidence: 99%

Section: Resultsmentioning

confidence: 99%

Section: Review Of Literaturementioning

confidence: 99%

See 1 more Smart Citation

Cost Efficiency Determinants: Evidence from the Canadian Banking Industry

Oredegbe¹

2019

IJBM

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“…Terraza (2015) showed that the capital adequacy degree declined during 2008, but there was an increase in capitalization and liquidity after that except for small banks in 2011 and 2012. In addition, Ding and Sickles (2018) pointed out a positive relation between capital and risk adjustments of large banks that held low capital buffers; however, they pointed out a negative relation between capital and risk adjustments for small banks with low capital buffers. The decrease of the large cap MES upon the increase in MES of the small cap along with the larger magnitude of the small cap MES could be foreseen as a positive improvement in large cap returns compared to small ones, which may be viewed as a change in the market expectations for large cap risks in relation to governmental bailout plans.…”

Section: Findings and Discussionmentioning

confidence: 99%

The Leaders, the Laggers, and the “Vulnerables”

Arakelian

Hashem

2020

Risks

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We examine the lead-lag effect between the large and the small capitalization financial institutions by constructing two global weekly rebalanced indices. We focus on the 10% of stocks that “survived” all the rebalancings by remaining constituents of the indices. We sort them according to their systemic importance using the marginal expected shortfall (MES), which measures the individual institutions’ vulnerability over the market, the network based MES, which captures the vulnerability of the risks generated by institutions’ interrelations, and the Bayesian network based MES, which takes into account different network structures among institutions’ interrelations. We also check if the lead-lag effect holds in terms of systemic risk implying systemic risk transmission from the large to the small capitalization, concluding a mixed behavior compared to the index returns. Additionally, we find that all the systemic risk indicators increase their magnitude during the financial crisis.

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“…This study aims to contribute to the literature on Islamic finance and Islamic banks' practice. Some studies investigated the capital's performance of Islamic and conventional banks in Spain, and bank ownership, loan relations, and capital structure in the United States (Fernández-Méndez & González, 2019; Ding & Sickles, 2018).…”

Section: Introductionmentioning

confidence: 99%

The Relationship Between Capital Structure and Performance in Islamic Rural Bank

Wahyudi¹,

Fithria²,

Wardiwiyono³

2020

Int. J. Islam. Stud. Human

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The capital structure is important for financial institutions including Sharia Rural Bank (BPRS). However, BPRS has a problem that is the limited capital owned so that it affects performance. The main objective of this paper is to investigate the relationship capital structure and performance of the Islamic Rural Banks (BPRS) in Indonesia. The study using panel data regression to measure the capital structure on performance. The research sample used 164 BPRS that operate in 33 provinces from 2010 until 2017. The results show that capital structure affects DER (debt to equity ratio) and DAR (debt to asset ratio), but negatively affects ETA (equity to total Asset ratio). These findings indicate that there is an increase in the capital structure of the performance of the BPRS in Indonesia. Hence, bank managers must reach a trade-off between the advantages and disadvantages of creating liquidity, and consider the negative relationship between liquidity creation and bank performance when making decisions.

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Frontier efficiency, capital structure, and portfolio risk: An empirical analysis of U.S. banks

Cited by 38 publications

References 33 publications

Cost Efficiency Determinants: Evidence from the Canadian Banking Industry

Cost Efficiency Determinants: Evidence from the Canadian Banking Industry

The Leaders, the Laggers, and the “Vulnerables”

The Relationship Between Capital Structure and Performance in Islamic Rural Bank

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