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  • Efficiency and Financial Crises_JBF-D-18002208_final_2019-07-17 (1)-converted

    Rights statement: This is the author’s version of a work that was accepted for publication in Journal of Banking and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking and Finance, 106, 2019 DOI: 10.1016/j.jbankfin.2019.07.013

    Accepted author manuscript, 1.1 MB, PDF document

    Available under license: CC BY-NC-ND

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Does efficiency help banks survive and thrive during financial crises?

Research output: Contribution to Journal/Magazine › Journal article › peer-review

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<mark>Journal publication date</mark>1/09/2019
<mark>Journal</mark>Journal of Banking and Finance
Volume106
Number of pages26
Pages (from-to)445-470
Publication StatusPublished
Early online date19/07/19
<mark>Original language</mark>English

Abstract

We examine how bank efficiency during normal times affects survival, risk, and profitability during subsequent financial crises using data from five U.S. financial crises and preceding normal times. We find that cost efficiency during normal times helps reduce bank failure probabilities, decrease risk, and enhance profitability during subsequent financial crises, while profit efficiency has limited benefits. Results suggest that cost efficiency better measures management quality, while profit efficiency may partially reflect temporary high returns from risky investments during normal times. Findings have policy implications and imply that improving bank cost efficiency during normal times may promote better financial crisis performance.

Bibliographic note

This is the author’s version of a work that was accepted for publication in Journal of Banking and Finance. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Banking and Finance, 106, 2019 DOI: 10.1016/j.jbankfin.2019.07.013