The relationship between size, growth and profitability of commercial banks

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Abstract:

Using a dynamic panel model for more than 15 000 banks from 148 countries from 1988 to 2010, we investigate the interaction between size, growth and profitability of banks. For our total sample, we cannot reject the hypotheses that the variability of bank profitability and the level and variability of bank growth are independent of bank size. However, in high-income Organization for Economic Cooperation and Development (OECD) countries bigger banks grow slower but are more profitable than small banks. While bank growth is not persistent, bank profitability is persistent. Finally, we find that bank growth and bank profitability are independent of each other.

Keywords: G21; G32; Gibrat's law; L25; bank growth; bank profitability; bank size

Document Type: Research Article

DOI: http://dx.doi.org/10.1080/00036846.2011.637896

Affiliations: Faculty of Economics and Business, Department of Finance,University of Groningen, PO Box 800Groningen, The Netherlands

Publication date: May 1, 2013

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