A Statistical Analysis of the Relative Profitability of Commercial Banks
Journal of Finance, Vol. 23, No. 1, pp. 167-176, March 1968
11 Pages Posted: 7 Oct 2012 Last revised: 10 Jul 2015
Date Written: July 6, 2015
Abstract
Overall, the study shows that all variables tested--management, size, location, time--are significant. Each variable significantly affected relative profitability and the majority of operating relationships that determine profitability. One striking result was the general influence of the variables throughout the bank operating areas. Also notable was the extreme influence of these effects on particular relationships.
The tests for management effects indicate the importance of management performance on relative profitability. Efforts to improve their performance should be encouraged. Specific attention should be given to the operating areas where differences in management are most apparent. The tests for size effects reinforce the importance of scale factors. Both profitability and operating relationships were influenced by size. The size relationships were frequently nonlinear with generalized concave or convex shapes. The analysis of location effects shows the significance of regional diversity. This diversity was apparent in both profitability and operating measures and reflects the greatly differing environments in which banks function.The results of the limited tests for time effects suggest the importance of changes in the general environment on profitability and operating measures.
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