Dynamics of growth and profitability in banking
نویسندگان
چکیده
This paper unifies the growth and profit strands in the empirical banking literature. A model allowing for bi-directional causality between growth and profit is used to test for the law of proportionate effect (LPE) and persistence of profit (POP), using 1990s European banking data. Larger commercial banks grew faster than smaller ones. The LPE describes the growth of savings and co-operative banks adequately. POP estimates are highest for co-operative banks, perhaps because entry is not profit-driven. Current profit boosts future growth, but in line with the managerial hypothesis there is also some evidence that current growth dampens future profit. a. Department of Economics, University of Wales Swansea, UK; b. Centre for Banking and Finance,; University of Wales Bangor, UK; c. Department of Management, University of St Andrews, UK. Corresponding author: Professor Phil Molyneux Centre for Banking and Finance University of Wales Bangor Gwynedd LL57 2DG UK tel: +44 (0)1248 382170 e-mail: [email protected]
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