nach oben

Journal of Economics and Finance

Erschienen in:

04.05.2017

The effects of income and population demographics on single-county bank performance

verfasst von: Ken B. Cyree, Brandon C. L. Morris

Erschienen in: Journal of Economics and Finance | Ausgabe 1/2018

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

We investigate the role market demographics play in determining the accounting performance of banks. Specifically, we study the effect of wealth and population to determine if these market factors drive performance, or if performance is related only to bank-specific variables. Using a sample of single-county banks, we find that market demographics play an important role in determining bank performance. Our univariate findings show banks that operate in low population counties outperform those in high population counties. We also show the lowest performing group of banks operates in counties characterized by high population and high income. Our multivariate tests confirm that as county-level population decreases, bank performance increases. Moreover, we observe a significant low-income advantage after controlling for other determinants of profitability. We also find that low population levels significantly mitigate the negative effects of the 2008 financial crisis for small, single-county banks.

Vorheriger Artikel The transmission of international stock market volatilities

Nächster Artikel A synthesized model of short selling constraints and their impact on stock returns

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Population density was also used, although it largely had no influence on deposit rates. The authors explained that this was likely due to the market fixed-effect regressors causing the variable to measure the change in population density, which is normally small. Therefore, we do not include population density as a variable in our study.

The Inter-University Consortium for Political and Social Research (ICPSR) provides a rich data set that contains an array of county characteristics by which researchers can investigate contextual influences at the county level. Data describing age, sex, and race demographics, crime rates, government distributions, employment statistics, and similar variables from several government agencies have been compiled into one useable data set covering the sample period 2000–2007. We use only county land area from this database, which does not change throughout our study period, and therefore we use the land area data across our entire sample period.

Our primary sample included only single-county banks, although the deposit Herfindahl is computed using both single-county banks and multi-county banks to provide an accurate description of competition in each county. We use total deposits for all banks in the county, consistent with most banking studies. We do not use multi-county banks in our sample because we cannot decompose ROA to the county level with SOD and call report data. Our Herfindahl is scaled so that its value ranges from 0 to 1, rather than from 0 to 10,000. It is computed for each county (i) for each year (t), using all unique bank deposits (j):

$$ {HHI}_{it}=\sum_{j=1}^N{Deposits}_{j it}^2 $$

In addition, for robustness we also estimated models using Net Interest Margin (NIM) and Net Non-interest margin (NNIM) as performance measures and found little to no relation with our population or income variables. NIM was correlated with ROA with a 0.261 Pearson Correlation Coefficient, and NNIM was correlated at 0.109. Given their weak correlation with the traditional measure of ROA, and their lack of explanatory power, we do not present these results. We thank an anonymous referee for suggesting this specification to investigate the relation between the sources of bank income and population and income.

We use the Allowance for Loan and Lease Losses (ALLL) for a measure of future losses and the Provision for Loan and Lease Losses (PLLL) that we term “Credit Losses’ to measure actual current losses. These two measures are positively correlated, but in our regression models have very low variance inflation factors below one, thus we keep each in the models to account for both current and expected risk of the lending portfolio.

We use the classification scheme provided by the National Center for Health Statistics when labeling counties as urban or rural and is available at: http://www.cdc.gov/nchs/data_access/urban_rural.htm.

Our primary results do not substantially change by using GLS fixed effects models. Both county population and county income estimates remain negative and statistically significant at the 1% level.

HP-HI ROA = −0.0386%, average firm ROA = 0.786%, therefore −0.0386/0.786 = −0.049. And 0.0314/1.025 = −0.306.

We thank an anonymous referee for these suggestions. We do not present the tables here, but they are available upon request.

Akhavein JD, Berger AN, Humphrey DB (1997) The effects of megamergers on efficiency and prices: evidence from a bank profit function. Rev Ind Organ 12:95–139CrossRef

Albertazzi U, Gambacorta L (2009) Bank profitability and the business cycle. J Financ Stab 5:393–409CrossRef

Athanasoglou PP, Brissimis SN, Delis MD (2008) Bank-specific, industry-specific and macroeconomic determinants of bank profitability. J Int Financ Mark Inst Money 18:121–136CrossRef

Berger AN (1995) The profit-structure relationship in banking—tests of market-power and efficient-structure hypotheses. J Money Credit Bank 27:404–431CrossRef

Berger AN, DeYoung R (2001) The effects of geographic expansion on bank efficiency. J Financ Serv Res 19:163–184CrossRef

Berger AN, Humphrey DB (1997) Efficiency of financial institutions: international survey and directions for future research. Eur J Oper Res 98:175–212CrossRef

Berger AN, Mester LJ (1997) Inside the black box: what explains differences in the efficiencies of financial institutions? J Bank Financ 21:895–947CrossRef

Berger AN, Bonime SD, Covitz DM, Hancock D (2000) Why are bank profits so persistent? The roles of product market competition, informational opacity, and regional/macroeconomic shocks. J Bank Financ 24:1203–1235CrossRef

Berger AN, Dick AA, Goldberg LG, White LJ (2007) Competition from large, multimarket firms and the performance of small, single-market firms: evidence from the banking industry. J Money Credit Bank 39:331–368CrossRef

Bonin JP, Hasan I, Wachtel P (2005) Bank performance, efficiency and ownership in transition countries. J Bank Financ 29:31–53CrossRef

Bos JWB, Kool CJM (2006) Bank efficiency: the role of bank strategy and local market conditions. J Bank Financ 30:1953–1974CrossRef

Cyree KB, Paul Spurlin W (2012) The effects of big-bank presence on the profit efficiency of small banks in rural markets. J Bank Financ 36:2593–2603CrossRef

DeLong G, DeYoung R (2007) Learning by observing: information spillovers in the execution and valuation of commercial bank M&as. J Financ 62:181–216CrossRef

DeYoung R, Hasan I (1998) The performance of de novo commercial banks: a profit efficiency approach. J Bank Financ 22:565–587CrossRef

Deyoung R, Hunter WC, Udell GF (2004) The past, present, and probable future for community banks. J Financ Serv Res 25:85–133CrossRef

GonzÁLez F (2009) Determinants of bank-market structure: efficiency and political economy variables. J Money Credit Bank 41:735–754CrossRef

Hannan TH, Prager RA (2004) The competitive implications of multimarket bank branching. J Bank Financ 28:1889–1914CrossRef

Hannan TH, Prager RA (2009) The profitability of small single-market banks in an era of multi-market banking. J Bank Financ 33:263–271CrossRef

Ivashina V, Scharfstein D (2010) Bank lending during the financial crisis of 2008. J Financ Econ 97:319–338CrossRef

Kwan SH (2003) Operating performance of banks among Asian economies: an international and time series comparison. J Bank Financ 27:471–489CrossRef

Pilloff SJ (1999) Multimarket contact in banking. Rev Ind Organ 14:163–182CrossRef

Rosen RJ (2007) Banking market conditions and deposit interest rates. J Bank Financ 31:3862–3884CrossRef

Vennet RV (2002) Cost and profit efficiency of financial conglomerates and universal banks in Europe. J Money, Credit, Bank 34:254–282CrossRef

Titel: The effects of income and population demographics on single-county bank performance
verfasst von: Ken B. Cyree
Brandon C. L. Morris
Publikationsdatum: 04.05.2017
Verlag: Springer US
Erschienen in: Journal of Economics and Finance / Ausgabe 1/2018
Print ISSN: 1055-0925
Elektronische ISSN: 1938-9744
DOI: https://doi.org/10.1007/s12197-017-9392-z

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft+Technik"

Springer Professional "Wirtschaft"

Weitere Artikel der Ausgabe 1/2018

On the relation between exchange rates and stock prices: a non-linear ARDL approach and asymmetry analysis

Oil and equity: too deep into each other

CEO ability and firm performance: Stock market and job market reactions

A synthesized model of short selling constraints and their impact on stock returns

Are standard asset pricing factors long-range dependent?

The transmission of international stock market volatilities