Determinants of U.S. Commercial Bank Performance: Regulatory and Econometric Issues

Posted: 25 Aug 1998

See all articles by P.A.V.B. Swamy

P.A.V.B. Swamy

Bureau of Labor Statistics

James R. Barth

Auburn University; Milken Institute

Ray Y. Chou

Academia Sinica

John S. Jahera

Auburn University - Harbert College of Business

Abstract

The purpose of this paper is to identify important determinants of the performance of commercial banks. Two profitability measures and one measure of loss are used as indicators of performance. Each of these measures is related to different types of bank assets and other variables. The choice of these measures and variables is justified by citing several previous studies in the area. Various arguments are also presented to show that these relationships are not linear, have unknown functional forms, and are not stable. To avoid the risk of misspecifying the functional form of the relationships, a wide class of functional forms is employed that may embody the true functional form as a special case even when the specific functional forms considered in previous studies are false. The empirical results obtained from the class approach are compared with those obtained by assuming linear and specific nonlinear relations to study the robustness of the results to departures from specific functional forms. The effects of excluded variables and of errors in measurement are also accounted for in the class approach.

JEL Classification: G21

Suggested Citation

Swamy, Paravastu A.V.B. and Barth, James R. and Chou, Ray Y. and Jahera, John S., Determinants of U.S. Commercial Bank Performance: Regulatory and Econometric Issues. Available at SSRN: https://ssrn.com/abstract=6649

Paravastu A.V.B. Swamy (Contact Author)

Bureau of Labor Statistics

2 Massachusetts Avenue, NE
Washington, DC 20212
United States

James R. Barth

Auburn University ( email )

415 West Magnolia Avenue
Auburn, AL 36849
United States
334-844-2469 (Phone)
334-844-4960 (Fax)

Milken Institute ( email )

1250 Fourth Street
Santa Monica, CA 90401
United States

Ray Y. Chou

Academia Sinica ( email )

128 Academia Road, Section 2
Nankang
Taipei, 11529
Taiwan

John S. Jahera

Auburn University - Harbert College of Business ( email )

415 Magnolia Ave.
Auburn, AL 36849
United States
334-844-5344 (Phone)

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