The Profitability of European Banks: A Cross-Sectional and Dynamic Panel Analysis

19 Pages Posted: 6 Jul 2004

See all articles by John A. Goddard

John A. Goddard

University of Wales, Swansea

Philip Molyneux

University of Sharjah - College of Business Administration

John O. S. Wilson

University of St. Andrews

Abstract

The profitability of European banks during the 1990s is investigated using cross-sectional, pooled cross-sectional time-series and dynamic panel models. Models for the determinants of profitability incorporate size, diversification, risk and ownership type, as well as dynamic effects. Despite intensifying competition there is significant persistence of abnormal profit from year to year. The evidence for any consistent or systematic size-profitability relationship is relatively weak. The relationship between the importance of off-balance-sheet business in a bank's portfolio and profitability is positive for the UK, but either neutral or negative elsewhere. The relationship between the capital-assets ratio and profitability is positive.

Suggested Citation

Goddard, John A. and Molyneux, Philip and Wilson, John O. S., The Profitability of European Banks: A Cross-Sectional and Dynamic Panel Analysis. Manchester School, Vol. 72, No. 3, pp. 363-381, June 2004. Available at SSRN: https://ssrn.com/abstract=540595

John A. Goddard (Contact Author)

University of Wales, Swansea ( email )

Singleton Park
Swansea, Wales SA2 8PP
United Kingdom

Philip Molyneux

University of Sharjah - College of Business Administration ( email )

University City Road
Sharjah, 27272
United Arab Emirates

John O. S. Wilson

University of St. Andrews ( email )

North St
Saint Andrews, Fife KY16 9AJ
United Kingdom

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