Does a bank's business model affect its capital and profitability?

Farné, Matteo; Vouldis, Angelos T.

doi:10.1111/ecno.12161

Cited by 7 publications

(4 citation statements)

References 31 publications

Supporting

Mentioning

Contrasting

Unclassified

Order By: Relevance

“…with high values of customer deposits and loans to customers) tend to record a higher ROE and Z-score than other models. Conversely, using a cross-section sample of European banks in 2014, Farnè & Vouldis (2020) uncover that securities holding banks tend to exhibit a relatively higher risk-return profile than their peers, while traditional commercial banks record, on average, the lowest riskreturns. Hryckiewicz & Kozłowski (2017) document that the contribution to systemic risk is greater for banks operating with an investment model (i.e.…”

Section: Empirical Literature On Banking Business Choicesmentioning

confidence: 97%

The profitability and distance to distress of European banks: do business choices matter?

Marques

Alves

2021

The European Journal of Finance

View full text Add to dashboard Cite

In this paper we examine which business choices are more likely to increase the profitability and distance to distress of banks, and whether changing business model pays off. Our analysis is framed under the theoretical premises of the strategic groups theory and the agency theory.We find that the profitability and distance to distress increase with the use of customer deposits and equity, and decrease with size; also, relationship banks and banks with a retail focused business model tend to outperform those with other orientations and business models, respectively. Moreover, we document the heterogeneous impact of business model choices on performance by finding that income diversification only bears a positive impact on the distance to distress of banks highly focused on relationship banking, and size only bears a negative effect on the profitability of these banks as well; additionally, only banks with low relationship banking orientation significantly benefit from customer deposits. We also dedicate considerable effort to studying the effects of business model changes on profitability and find that shifts from the retail diversified funding model to either the retail focused or the large diversified model improve performance in the medium term. Finally, we find evidence that large diversified banks benefited from internal capital markets during the twin financial crisis in Europe (2008Europe ( -10, 2011) by tapping into low-cost funding from subsidiaries. Our results are robust to changes to our baseline model that account for endogeneity and persistency issues.

show abstract

Section: Empirical Literature On Banking Business Choicesmentioning

confidence: 97%

The profitability and distance to distress of European banks: do business choices matter?

Marques

Alves

2021

The European Journal of Finance

View full text Add to dashboard Cite

show abstract

“…When controlling for bank-specific variables, we find a negative sign for GL/TA, suggesting that traditional credit intermediaries achieve poorer performance, in line with Bongini et al (2019), Ayadi et al (2020), Farnè ijef.ccsenet.org International Journal of Economics and Finance Vol. 14, No.2;Vouldis (2020). Among country-specific variables, we find a negative relationship between performance and sovereign interest rates (y10bond): higher spreads not only increase the cost of bank funding but also proxy for the country's poor macroeconomic fundamentals, which also decreases bank profitability.…”

Section: Board Collective Suitability and Bank Performancementioning

confidence: 78%

Does Board Collective Suitability Affect Performance and Risk? Evidence from European Banks

Battista¹,

Nieri²,

Resta³

et al. 2022

IJEF

View full text Add to dashboard Cite

This paper analyzes the features of the boards of large listed European banks and their degree of “collective suitability” as formalized by the Capital Requirements Directives (CRD4) and evaluates whether closer proximity to the collective suitability regulatory paradigm affects banks’ performance, risk and risk-adjusted performance. We leverage Self-Organizing Maps (SOMs) to analyze board features and suitability (i.e. competence, diversity, independence and time commitment) jointly as a multifaceted, non-linear combination of all board variables, rather than evaluating the single variables individually as in the mainstream literature. Using a hand-collected dataset based on numerous features of boards of directors, we find that European banks’ boards can be classified in four different board archetypes characterized by different degrees of collective suitability. Our findings also suggest positive relationships between the degree of collective suitability and performance, risk-adjusted performance, and risk, confirming that the regulatory provisions on governance are going in the right direction, enhancing effective and prudent management.

show abstract

“…Internal capital usually comes from operating income, while external capital comes from third-party funding. Farnè and Vouldis (2020) states that capital is all forms of wealth, whether it is obtained from the company's ability or from other parties in the form of loans. The capital consists of 1) business capital, all assets that can be used directly or indirectly by the company to increase output, and 2) working capital, the capital needed for daily operational costs.…”

Section: Working Capitalmentioning

confidence: 99%

Technological Literacy and Resource Management in Sme Income

Oktasavira¹,

Ismanto²

2022

EKUITAS (Jurnal Ekonomi dan Keuangan)

View full text Add to dashboard Cite

The characteristics of SMEs continue to be highlighted, but the exciting thing behind their strengths are acute unresolved problems such as technology skills, human resource management and finance. Borrowing assumptions from resource-based theory, this study tries to examine the effect of technological literacy, working capital, and labour management on the income of SMEs. The sample consisted of 100 SMEs in 14 industries randomly assigned proportionally based on their industry type and filled out the research questionnaire directly. The collected questionnaires were tabulated and analyzed using the Partial Least Square method. The results show that technological literacy, working capital, and labour management positively affect business income individually and simultaneously. These findings record that 45 per cent of the sample do not integrate their products with competitors because they are less skilled in using information media to measure competitors' capabilities. In practice, technological literacy can be transformed for production, administration, and product marketing activities to maximize business income.

show abstract

Does a bank's business model affect its capital and profitability?

Cited by 7 publications

References 31 publications

The profitability and distance to distress of European banks: do business choices matter?

The profitability and distance to distress of European banks: do business choices matter?

Does Board Collective Suitability Affect Performance and Risk? Evidence from European Banks

Technological Literacy and Resource Management in Sme Income

Contact Info

Product

Resources

About