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Profit efficiency in U.S. BHCs: Effects of increasing non-traditional revenue sources

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  • Akhigbe, Aigbe
  • Stevenson, Bradley A.
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    Abstract

    Using information multiple times across revenue streams, BHCs may increase efficiency due to economies of scope. Our main contribution is to be the first to examine noninterest income after passage of the Gramm-Leach-Bliley Act, when additional opportunities to increase noninterest income arise. We examine profit efficiency and its relationship to noninterest income for BHCs using stochastic frontier analysis and multivariate analysis on BHC data from 2003 to 2006. Contrary to our hypothesis, the results indicate multi-noninterest income types are associated with decreased profit efficiency. These results are robust using the Efficiency Ratio as our measure and are particularly strong for small BHCs.

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    Bibliographic Info

    Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

    Volume (Year): 50 (2010)
    Issue (Month): 2 (May)
    Pages: 132-140

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    Handle: RePEc:eee:quaeco:v:50:y:2010:i:2:p:132-140

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    Web page: http://www.elsevier.com/locate/inca/620167

    Related research

    Keywords: Financial Services Modernization Act Noninterest income Fees Bank efficiency Frontier analysis;

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    Cited by:
    1. Aiello, Francesco & Bonanno, Graziella, 2014. "On the Sources of Heterogeneity in Banking Efficiency Literature," MPRA Paper 58591, University Library of Munich, Germany.
    2. Timothy King & Jonathan Williams, 2013. "Bank Efficiency and Executive Compensation," Working Papers 13009, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    3. Filson, Darren & Olfati, Saman, 2014. "The impacts of Gramm–Leach–Bliley bank diversification on value and risk," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 209-221.
    4. Hadad, Muliaman D. & Hall, Maximilian J.B. & Santoso, Wimboh & Simper, Richard, 2013. "Economies of scale and a process for identifying hypothetical merger potential in Indonesian commercial banks," Journal of Asian Economics, Elsevier, vol. 26(C), pages 42-51.
    5. Pejman Abedifar & Philip Molyneux & Amine Tarazi, 2014. "Non-Interest Income Activities and Bank Lending," Working Papers hal-00947074, HAL.

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