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Earnings, risk-taking, and capital accumulation in small and large community banks

Author

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  • Balla, Eliana
  • Rose, Morgan J.

Abstract

We examine the relationships between ownership structure and both earnings and risk-taking among community banks before, during, and after the US financial crisis. We find that publicly-held small community banks had lower earnings than privately-held ones before the recession, but had higher earnings during and after the recession. Publicly-held small community banks exhibited similar risk-taking to privately-held ones before and during the recession, but greater risk-taking after. We also find that publicly-held small community banks de-risked more slowly than privately-held ones following the recession. Large community banks, on the other hand, show no consistent relationship between ownership structure and earnings, and a strong cyclical relationship between ownership structure and risk-taking. These findings expand our understanding of how community bank performance and capital accumulation behaves through different cyclical periods, and how ownership structure affects that behavior.

Suggested Citation

  • Balla, Eliana & Rose, Morgan J., 2019. "Earnings, risk-taking, and capital accumulation in small and large community banks," Journal of Banking & Finance, Elsevier, vol. 103(C), pages 36-50.
    • Handle: RePEc:eee:jbfina:v:103:y:2019:i:c:p:36-50
    DOI: 10.1016/j.jbankfin.2019.03.005
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    Citations

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    Cited by:

    1. Luca Bellardini & Pierluigi Murro & Daniele Previtali, 2019. "The Risk Weighted Ownership Index: an ex-ante measure of banks' risk and performance," Working Papers CASMEF 1904, Dipartimento di Economia e Finanza, LUISS Guido Carli.
    2. Hassan, M. Kabir & Karim, M. Sydul & Lawrence, Shari & Risfandy, Tastaftiyan, 2022. "Weathering the COVID-19 storm: The case of community banks," Research in International Business and Finance, Elsevier, vol. 60(C).
    3. Faisal Abbas & Shoaib Ali & Imran Yousaf & Wing-Keung Wong, 2021. "Dynamics of Funding Liquidity and Risk-Taking: Evidence from Commercial Banks," JRFM, MDPI, vol. 14(6), pages 1-16, June.
    4. Md Mohiuddin Chowdhury & Changjun Zheng & Anupam Das Gupta & Atta Ullah, 2024. "Competition's Effect: Unveiling the Simultaneous Relationship between Risk and Cost of Financial Intermediation," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 14(5), pages 1-4.
    5. Bellardini, Luca & Murro, Pierluigi & Previtali, Daniele, 2024. "Measuring the risk appetite of bank-controlling shareholders: The Risk-Weighted Ownership index," Global Finance Journal, Elsevier, vol. 60(C).
    6. Wang, Wei & Huang, Jun & Wang, Haibo & Alidaee, Bahram, 2022. "Internal and external analysis of community banks' performance," International Review of Financial Analysis, Elsevier, vol. 84(C).
    7. Alex Fayman & Su‐Jane Chen & Timothy Mayes, 2022. "Community banks versus non‐community banks: Post the Great Recession," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 51(2), July.

    More about this item

    Keywords

    Earnings; Ownership structure; Risk taking; Community banks; Financial institutions;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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