Firm Growth and Efficiency in the Banking Industry: A new test of the efficient structure hypothesis
AbstractThis paper proposes a new test of the efficient structure hypothesis by directly examining the relation between firm efficiency and firm growth. This is also a test of the so-called quiet-life hypothesis. Applying this test to large banks in Japan, we find that more efficient banks become larger, which is consistent with the efficient structure hypothesis. We also find that market concentration reduces banks' cost efficiency, which is consistent with the quiet-life hypothesis. These findings imply that there is an intriguing growth-efficiency dynamic throughout the life cycle of banks, although yet another finding suggests that the economic impact of the quiet-life hypothesis is less significant than that of the efficient structure hypothesis.
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Bibliographic InfoPaper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 12060.
Length: 49 pages
Date of creation: Sep 2012
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Other versions of this item:
- Homma, Tetsushi & Tsutsui, Yoshiro & Uchida, Hirofumi, 2014. "Firm growth and efficiency in the banking industry: A new test of the efficient structure hypothesis," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 143-153.
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-10-06 (All new papers)
- NEP-BAN-2012-10-06 (Banking)
- NEP-EFF-2012-10-06 (Efficiency & Productivity)
- NEP-FDG-2012-10-06 (Financial Development & Growth)
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