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

51 Pages Posted: 2 Feb 2012 Last revised: 29 Apr 2013

Michael Koetter

IWH

James W. Kolari

Texas A&M University, Department of Finance

Laura Spierdijk

University of Groningen

Date Written: January 31, 2012

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.

JEL Classification: D40, G21, L1

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: https://ssrn.com/abstract=1996806 or http://dx.doi.org/10.2139/ssrn.1996806

Michael Koetter (Contact Author)

IWH ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

HOME PAGE: http://www.iwh-halle.de/en/about-the-iwh/people/detail/michael-koetter/

James W. Kolari

Texas A&M University, Department of Finance ( email )

MS-4218
Department of Finance
College Station, TX 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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