Forming Appropriate Peer Groups for Bank Research: A Cluster Analysis of Bank Financial Statements

36 Pages Posted: 20 Jun 2018

See all articles by Ken B. Cyree

Ken B. Cyree

University of Mississippi - School of Business Administration

Travis Davidson

Ohio University - Department of Finance

John D. Stowe

Ohio University

Date Written: June 4, 2018

Abstract

Choosing appropriate peer groups for bank research is important to evaluate safety and soundness, merger effects, and overall performance. We use commercial bank financial statements with common size variables as the inputs to a cluster analysis model to identify clusters or groups of banks with financial structures that are relatively homogeneous within groups and distinct across groups. Using data from 2014 year-end Reports of Condition and Income, we cluster 6,444 banks into several such groups. Our results show that bank clusters are formed largely around loan types and that using our groups can improve explanatory power in regression models when compared to grouping on bank size.

Keywords: Commercial bank taxonomy, Financial institutions, Cluster Analysis, Bank financial statements, Bank peer groups

JEL Classification: G21

Suggested Citation

Cyree, Ken B. and Davidson, Travis and Stowe, John D., Forming Appropriate Peer Groups for Bank Research: A Cluster Analysis of Bank Financial Statements (June 4, 2018). Available at SSRN: https://ssrn.com/abstract=3190619 or http://dx.doi.org/10.2139/ssrn.3190619

Ken B. Cyree

University of Mississippi - School of Business Administration ( email )

PO Box 3986
Oxford, MS 38677
United States

Travis Davidson

Ohio University - Department of Finance ( email )

640 Copeland
Athens, OH 45701
United States

John D. Stowe (Contact Author)

Ohio University ( email )

640 Copeland
Athens, OH 45701
United States
(434) 409-0239 (Phone)

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