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In Finance, Size Matters

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Author Info
Biaggio Bossone
Jong-Kun Lee
Abstract

This study investigates the relationship between production efficiency in financial intermediation and financial system size. The study predicts and tests for the existence of "systemic scale economies" (SSEs), whereby value-maximizing intermediaries operating in large systems are expected to have lower production costs and lower costs of risk absorption and reputation signaling than intermediaries operating in small systems. The study investigates different channels through which the SSEs work their effects through the intermediaries and estimates such effects using a large banking data panel. The study shows strongly supporting evidence in favor of SSEs. It also finds that the institutional environment, the risk environment, and market concentration affect significantly the production efficiency of financial intermediaries.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/113.

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Length: 48 pages
Date of creation: 09 Jul 2002
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Handle: RePEc:imf:imfwpa:02/113

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Keywords: Banks ; Financial institutions ; Financial intermediation ; Financial systems ; Capital markets ; Economic models ;

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alicia García Herrero & Javier Santillán & Sonsoles Gallego & Lucía Cuadro & Carlos Egea, 2002. "Latin American Financial Development in Perspective," Banco de España Working Papers 0216, Banco de España. [Downloadable!]
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