Enjoying the Quiet Life Under Deregulation? Evidence from Adjusted Lerner Indices for U.S. Banks

Koetter, Michael; Kolari, James W.; Spierdijk, Laura

doi:10.2139/ssrn.1996806

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Enjoying the Quiet Life Under Deregulation? Evidence from Adjusted Lerner Indices for U.S. Banks

Mays Business School Research Paper No. 2012-26

51 Pages Posted: 2 Feb 2012 Last revised: 29 Apr 2013

See all articles by Michael Koetter

James W. Kolari

Texas A&M University - Department of Finance

Laura Spierdijk

University of Twente - Department of Behavioural, Management and Social Sciences - Financial Engineering section

Date Written: January 31, 2012

Abstract

The quiet life hypothesis posits that firms with market power incur inefficiencies rather than reap monopolistic rents. We propose a simple adjustment to Lerner indices to account for the possibility of foregone rents to test this hypothesis. For a large sample of U.S. commercial banks, we find that adjusted Lerner indices are significantly larger than conventional Lerner indices and trending upward over time. Instrumental variable regressions reject the quiet life hypothesis for cost inefficiencies. However, Lerner indices adjusted for profit inefficiencies reveal a quiet life among U.S. banks.

JEL Classification: D40, G21, L1

Suggested Citation: Suggested Citation

Koetter, Michael and Kolari, James W. and Spierdijk, Laura, Enjoying the Quiet Life Under Deregulation? Evidence from Adjusted Lerner Indices for U.S. Banks (January 31, 2012). Mays Business School Research Paper No. 2012-26, Available at SSRN: https://ssrn.com/abstract=1996806 or http://dx.doi.org/10.2139/ssrn.1996806