Enjoying the Quiet Life Under Deregulation? Evidence from Adjusted Lerner Indices for U.S. Banks
Frankfurt School of Finance and Management
James W. Kolari
Texas A&M University, Department of Finance
University of Groningen
January 31, 2012
Mays Business School Research Paper No. 2012-26
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.
Number of Pages in PDF File: 51
JEL Classification: D40, G21, L1
Date posted: February 2, 2012 ; Last revised: April 29, 2013
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