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Australian Finance Company Profitability: Tests of the Hedging and S.C.P. Models

Author

Listed:
  • R. W. McShane

    (Department of Economics, University of Newcastle.)

  • I. G. Sharpe

    (Department of Finance, University of New South Wales.)

Abstract

The paper tests the hedging and structure-conduct-perfor Mance (S.C.P.) models in the context of Australian finance company profit margins. Econometric results from pooled time-series/cross-section data were consistent with the S.C.P. model and inconsistent with the hedging model. Finance company profits are positively related to market power and the degree of risk aversion, and negatively related to the level of interest rates and provisions made for bad and doubtful debts.

Suggested Citation

  • R. W. McShane & I. G. Sharpe, 1987. "Australian Finance Company Profitability: Tests of the Hedging and S.C.P. Models," Australian Journal of Management, Australian School of Business, vol. 12(1), pages 69-90, June.
    • Handle: RePEc:sae:ausman:v:12:y:1987:i:1:p:69-90
    DOI: 10.1177/031289628701200106
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    References listed on IDEAS

    as
    1. Flannery, Mark J, 1983. "Interest Rates and Bank Profitability: Additional Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(3), pages 355-362, August.
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    3. J. H. Hatch & M. K. Lewis, 1973. "Economies of Scale in Australian Banking: A Reply," The Economic Record, The Economic Society of Australia, vol. 49(3), pages 481-484, September.
    4. Ho, Thomas S. Y. & Saunders, Anthony, 1981. "The Determinants of Bank Interest Margins: Theory and Empirical Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 16(4), pages 581-600, November.
    5. Edgar, R J & Hatch, J H & Lewis, M K, 1971. "Economies of Scale in Australian Banking, 1947-68," The Economic Record, The Economic Society of Australia, vol. 47(117), pages 17-37, March.
    6. Hendry, David F & Mizon, Grayham E, 1978. "Serial Correlation as a Convenient Simplification, not a Nuisance: A Comment on a Study of the Demand for Money by the Bank of England," Economic Journal, Royal Economic Society, vol. 88(351), pages 549-563, September.
    7. Hatch, J H & Lewis, M K, 1973. "Economies of Scale in Australian Banking: Reply," The Economic Record, The Economic Society of Australia, vol. 49(127), pages 481-484, September.
    8. Flannery, Mark J, 1981. "Market Interest Rates and Commercial Bank Profitability: An Empirical Investigation," Journal of Finance, American Finance Association, vol. 36(5), pages 1085-1101, December.
    Full references (including those not matched with items on IDEAS)

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