John O. S. Wilson

Dynamics of Growth and Profitability in Banking

Dynamic panel and cross-sectional regressions are used to estimate growth and profit equations for a sample of commercial, savings, and co-operative banks from five major European Union countries during the mid-1990s. Methodologically, the paper unifies the growth and profit strands in the previous empirical literature. The growth regressions reveal little or no evidence of mean-reversion in bank sizes. Profit is an important prerequisite for future growth. Banks that maintain a high capital-assets ratio tend to grow slowly, and growth is linked to macroeconomic conditions. Otherwise, there are few systematic influences on bank growth. The persistence of profit appears higher for savings and co-operative banks than for commercial banks. Banks that maintain high capital-assets or liquidity ratios tend to record relatively low profitability. There is some evidence of a positive association between concentration and profitability, but little evidence of a link between bank-level x-inefficiency and profitability.

Determinants of profitability in European manufacturing and services: evidence from a dynamic panel model

Recent advances in panel data econometrics are used to investigate the determinants of profitability for manufacturing and service sector firms in Belgium, France, Italy and the UK, for the period 1993–2001. The paper synthesizes empirical models that have been used by researchers in industrial economics, strategic management and accounting and finance. Despite the formation of the European Unions Single Market in goods and services, abnormal profit still appears to persist significantly from year to year. There is evidence of a negative size-profitability relationship, but the relationship between market share and profitability is positive, and stronger in manufacturing than in services. The relationship between a firms gearing ratio and its profitability is negative, but firms with higher liquidity tend to be more profitable.

Panel tests of Gibrat's Law for Japanese manufacturing

Abstract The properties of the standard cross sectional test of the Law of Proportionate Effect (LPE) are compared with those of three alternative panel unit root tests, using Monte Carlo methods. The cross sectional procedure produces biased parameter estimates and the test suffers from a loss of power if there are heterogeneous individual firm effects. Suitably designed panel tests avoid these difficulties. Empirical results for a panel of Japanese manufacturing firms provides some support for the notion that log firm sizes are mean-reverting towards heterogeneous equilibrium values, and that the LPE should be rejected.

The persistence of profit: a new empirical interpretation

Abstract Inferences are drawn about the true coefficients which correspond to sample estimates of a persistence of profit model fitted over a large number of firms. This is done by generating simulated sampling distributions for the estimators over various distributional assumptions. Profits seem to be stationary for all firms, with an average short run persistence coefficient of 0.59, higher than most previous estimates. Long run profit rates differ between firms, although by less than is suggested by direct observation of variations in mean profit rates calculated over time. Short run persistence appears to be inversely related to unsystematic variation in profit.

The Persistence of Bank Profit

This paper examines the strength of competition in 65 national banking industries. Country-level dynamic panel estimates of the persistence of bank profit are reported and compared. The persistence of bank profit appears to be weaker for banks in developing countries than for those in developed countries. Persistence is relatively high in North America and Western Europe and relatively low in East Asia, the Pacific and Sub-Saharan Africa. The persistence of profit is stronger when entry barriers are high, and when competition is low according to both structure- and conduct-based competition indicators.

Competition And Stability In European Banking: A Regional Analysis

National measures of competition and macroeconomic activity have been used by researchers in recent years to explain performance and risk differentials across banks. However, such measures may be inappropriate for banks which operate with a regional focus. In this paper we construct measures of competition and economic activity using regional data to examine bank risk and stability in 11 European countries over the period 2000-2008. The results suggest that a U-shaped relationship exists between regional bank competition and risks. Furthermore, regional economic conditions play a significant role in determining the stability of banks.

The profitability of banks in Japan

This article investigates the profitability of Japanese banks following the major financial crisis that affected the countrys economy in the mid-1990s. Further, it examines the determinants of bank profitability for a sample of banks with different ownership structures (City, Trust, Regional, Second Association Regional, Shinkin and Other Credit Cooperatives). We find evidence that well capitalized, efficient banks, with lower credit risks tend to outperform less capitalized, less efficient counterparts with higher credit risks. Second Association Regional banks and Shinkin banks (but not other ownership types) appear to benefit from diversification advantages which feed through to profitability. Furthermore, we find that industry concentration, Gross Domestic Product (GDP) growth and the extent of stock market development play an important role in determining the profitability of Japanese banks.

Credit Unions: A Theoretical and Empirical Overview

In 2009 there were over 49,330 credit unions across 98 countries with more than 184 million members and approximately

Do Bank Profits Converge

1,354 billion in assets. There is a great diversity within the credit union movement across these countries. This reflects the various economic, historic and cultural contexts within which credit unions operate. This paper traces the evolution of the credit union movement. It examines credit union objectives, and considers issues relating to efficiency, technology adoption, product diversification, merger, failure and demutualisation. The regulatory environment within which credit unions operate is also explored under the themes of interest rate regulation, common bond requirements, taxation, deposit insurance and capital regulation. The overview also considers demutualisation and the costs and benefits to credit unions of altering their organisational form.

The financial crisis in Europe: evolution, policy responses and lessons for the future

This paper examines the determinants and convergence of bank profitability in eight European Union member countries, between 1992 and 2007, using a dynamic panel model. There is evidence of persistence of abnormal bank profit from one year to the next. Average profitability was higher in banks that are strongly capitalised, efficient and diversified. The persistence of EU bank profit was lower in 1999-2007 than it was in 1992-98 in six of the eight countries. This suggests there has been an increase in the intensity of competition and speed of convergence of profits towards their long-run equilibrium values. These developments are attributed to improvements in the integration of financial markets within the EU, following the introduction of the euro in 1999, and the implementation of the Financial Services Action Plan.