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Enjoying the Quiet Life Under Deregulation? Evidence from Adjusted Lerner Indices for U.S. Banks


Michael Koetter


Frankfurt School of Finance and Management

James W. Kolari


Texas A&M University - Department of Finance

Laura Spierdijk


University of Groningen

January 31, 2012

Mays Business School Research Paper No. 2012-26

Abstract:     
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

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Date posted: February 2, 2012 ; Last revised: April 29, 2013

Suggested Citation

Koetter, Michael and Kolari, James W. and Spierdijk, Laura, Enjoying the Quiet Life Under Deregulation? Evidence from Adjusted Lerner Indices for U.S. Banks (January 31, 2012). Mays Business School Research Paper No. 2012-26. Available at SSRN: http://ssrn.com/abstract=1996806 or http://dx.doi.org/10.2139/ssrn.1996806

Contact Information

Michael Koetter (Contact Author)
Frankfurt School of Finance and Management ( email )
Sonnemannstraße 9-11
Frankfurt am Main, 60314
Germany
James W. Kolari
Texas A&M University (TAMU) - Department of Finance ( email )
351R Wehner
Department of Finance
College Station, TX 77843-4218
United States
979-845-4803 (Phone)
979-845-3884 (Fax)

Laura Spierdijk
University of Groningen ( email )
PO Box 800
Groningen, 9700 AV
Netherlands
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