Did Banks' Security Affiliates Add Value? Evidence from the Commercial Banking Industry during the 1920s
This paper finds that banks' security affiliates added 4% to 7% to the market value of commercial banks in 1926 and 1927. This result is robust to the inclusion of a large array of control variables, including risk, regulatory environment, and financial health variables such as the capital-asset ratio and profitability measures. Bank size explains about 40% of this premium, thus suggesting that economies of scale were present. The remaining 60% of the premium most likely came from economies of scope. This result implies that the Glass-Steagall Act, by disallowing banks' involvement in the securities industry, had a direct cost in lost market value for the commercial banking industry.
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Volume (Year): 34 (2002)
Issue (Month): 2 (May)
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