Radić, Nemanja and Fiordelisi, Franco and Girardone, Claudia (2012) Efficiency and Risk-Taking in Pre-Crisis Investment Banks. Journal of Financial Services Research, 41 (1-2). pp. 81-101. DOI https://doi.org/10.1007/s10693-011-0111-1
Radić, Nemanja and Fiordelisi, Franco and Girardone, Claudia (2012) Efficiency and Risk-Taking in Pre-Crisis Investment Banks. Journal of Financial Services Research, 41 (1-2). pp. 81-101. DOI https://doi.org/10.1007/s10693-011-0111-1
Radić, Nemanja and Fiordelisi, Franco and Girardone, Claudia (2012) Efficiency and Risk-Taking in Pre-Crisis Investment Banks. Journal of Financial Services Research, 41 (1-2). pp. 81-101. DOI https://doi.org/10.1007/s10693-011-0111-1
Abstract
Investment banks' core functions expose them to a wide array of risks. This paper analyses cost and profit efficiency for a sample of investment banks for the G7 countries (Canada, France, Germany, Italy, Japan, UK and US) and Switzerland prior to the recent financial crisis. We follow Coelli et al. (J Prod Anal 11:251-273, 1999)'s methodology to adjust the estimated cost and profit efficiency scores for environmental influences including key banks' risks, bank- and industry- specific factors and macroeconomic conditions. Our evidence suggests that failing to account for environmental factors can considerably bias the efficiency scores for investment banks. Specifically, bank risk-taking factors (including liquidity and capital risk exposures) are found particularly important to accurately assess profit efficiency: i. e. profit efficiency estimates are consistently underestimated without accounting for bank risk-taking. Interestingly, our evidence suggests that size matters for both cost and profit efficiency, however this does not imply that more concentrated markets are more efficient. © 2011 Springer Science+Business Media, LLC.
Item Type: | Article |
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Additional Information: | Source info: Journal of Financial Services Research. https://doi.org/10.1007/s10693-011-0111-1 |
Uncontrolled Keywords: | Investment banking; Stochastic frontier analysis; Efficiency; Environmental conditions; Banking risks |
Subjects: | H Social Sciences > HG Finance |
Divisions: | Faculty of Social Sciences Faculty of Social Sciences > Essex Business School |
SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
Depositing User: | Unnamed user with email elements@essex.ac.uk |
Date Deposited: | 03 Aug 2013 08:12 |
Last Modified: | 30 Oct 2024 19:49 |
URI: | http://repository.essex.ac.uk/id/eprint/7209 |