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Bank Performance around the Introduction of a Section 20 Subsidiary

Author

Listed:
  • Marcia Millon Cornett

    (Southern Illinois University at Carbondale,)

  • Evren Ors

    (Southern Illinois University at Carbondale,)

  • Hassan Tehranian

    (Boston College)

Abstract

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.

Suggested Citation

  • Marcia Millon Cornett & Evren Ors & Hassan Tehranian, 2002. "Bank Performance around the Introduction of a Section 20 Subsidiary," Journal of Finance, American Finance Association, vol. 57(1), pages 501-521, February.
  • Handle: RePEc:bla:jfinan:v:57:y:2002:i:1:p:501-521
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