An International Comparison of Banks' Equity Returns
Journal of Money, Credit and Banking, Vol. 30, No. 3, Part 2 (August 1998)
Posted: 10 Apr 1998
This paper tests implications of banking theory and legal theory for cross-country differences in banks' equity betas and returns. Banking theory predicts different risk exposures between transactional banks, found in the U.S., U.K., Australia and Canada, and relationship banks, found in Japan, Germany, Switzerland, and the Netherlands. We find strong empirical support for banking theory's prediction of different risks and returns between transactional and relationship banks. Legal theory predicts that differences in banks' equity risks depend on the nature of the legal system for protecting the interests of outside investors. We find mixed evidence that banks' returns may vary by the type of legal system.
JEL Classification: G21
Suggested Citation: Suggested Citation