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Bank Performance around the Introduction of a Section 20 Subsidiary

  • Marcia Millon Cornett

    (Southern Illinois University at Carbondale,)

  • Evren Ors

    (Southern Illinois University at Carbondale,)

  • Hassan Tehranian

    (Boston College)

As of 1987, commercial banks in the United States were allowed to establish Section 20 subsidiaries to conduct investment-banking activities. A concern of regulators was that these activities would result in a decrease in performance of commercial banks relative to the risk being undertaken. This paper examines the performance of commercial banks around the establishment of a Section 20 subsidiary. We find that Section 20 activities undertaken by banks result in increased industry-adjusted operating cash flow return on assets, due mainly to revenues from noncommercial-banking activities. Further, risk measures for the sample banks do not change significantly. Copyright The American Finance Association 2002.

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Article provided by American Finance Association in its journal The Journal of Finance.

Volume (Year): 57 (2002)
Issue (Month): 1 (02)
Pages: 501-521

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Handle: RePEc:bla:jfinan:v:57:y:2002:i:1:p:501-521
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