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Financial variables contributing to savings and loan failures from 1980–1989

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  • Patricia Harrison
  • Wade R. Ragas

Abstract

This study investigates performance in the savings and loan (S&L) industry during the 1980s. Logistic regression is used to replicate the Benston (1985) study for the decade of the eighties. This study expands upon Benston's work by identifying the effects of new charters (1980 or later), and differing capital definitions (GAAP) versus RAP). The stability of the variables contributing to success or failure is also reviewed for the periods 1982–1985 and 1986–1989. The results of this study confirm the earlier findings of Benston. Net worth to total assets and return on total assets were negatively related to failure and were the only variables found to be significant in all analyses. Direct investments to total assets was not found to be significant. Further, newly chartered firms were found to be no more likely to fail than the other existing firms. There were no major differences in the statistical results when testing using the GAAP and RAP definitions of capital which suggests that regulatory changes in accounting rules did not have a major effect on firm survival.

Suggested Citation

  • Patricia Harrison & Wade R. Ragas, 1995. "Financial variables contributing to savings and loan failures from 1980–1989," Review of Financial Economics, John Wiley & Sons, vol. 4(2), pages 197-210, March.
    • Handle: RePEc:wly:revfec:v:4:y:1995:i:2:p:197-210
    DOI: 10.1016/1058-3300(95)90007-1
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    References listed on IDEAS

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