Coincident correlations of growth and cash flow in banking
Prior empirical research indicates that loan growth in the banking industry is positively related to cash flow. I offer an alternative methodology that is better able to capture the effect of cash flow on loan growth while controlling for the potentially coincident effect of loan growth on cash flow. Using a sample of 171,389 observations on banks, 1986–2007, I find that causality runs more consistently from growth to cash flow than from cash flow to growth. This extends prior empirical research by Houston and James (1998) and Campello (2002) on cash flow sensitivities in the banking industry.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
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.:
- Houston, Joel F. & James, Christopher, 1998. "Do bank internal capital markets promote lending?," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 899-918, August.
- Brown, James R. & Petersen, Bruce C., 2009. "Why has the investment-cash flow sensitivity declined so sharply? Rising R&D and equity market developments," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 971-984, May.
- Murillo Campello, 2002. "Internal Capital Markets in Financial Conglomerates: Evidence from Small Bank Responses to Monetary Policy," Journal of Finance, American Finance Association, vol. 57(6), pages 2773-2805, December.
- Houston, Joel & James, Christopher & Marcus, David, 1997. "Capital market frictions and the role of internal capital markets in banking," Journal of Financial Economics, Elsevier, vol. 46(2), pages 135-164, November.
- Ahmed, Anwer S. & Takeda, Carolyn & Thomas, Shawn, 1999. "Bank loan loss provisions: a reexamination of capital management, earnings management and signaling effects," Journal of Accounting and Economics, Elsevier, vol. 28(1), pages 1-25, November.
- Jayaratne, Jith & Morgan, Donald P, 2000. "Capital Market Frictions and Deposit Constraints at Banks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(1), pages 74-92, February.
- Foos, Daniel & Norden, Lars & Weber, Martin, 2010. "Loan growth and riskiness of banks," Journal of Banking & Finance, Elsevier, vol. 34(12), pages 2929-2940, December.
- Vladimir A. Gatchev & Todd Pulvino & Vefa Tarhan, 2010. "The Interdependent and Intertemporal Nature of Financial Decisions: An Application to Cash Flow Sensitivities," Journal of Finance, American Finance Association, vol. 65(2), pages 725-763, 04.
- Drew Dahl & Ronald Shrieves & Michael Spivey, 2002. "Financing Loan Growth at Banks," Journal of Financial Services Research, Springer, vol. 22(3), pages 189-202, December.
When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:36:y:2012:i:4:p:1139-1143. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If references are entirely missing, you can add them using this form.