Does one bank size fit all? The role of diversification and monitoring

Panagiotis Avramidis (), Christos Cabolis and Konstantinos Serfes ()
Additional contact information
Panagiotis Avramidis: ALBA Graduate Business School at The American College of Greece, Postal: ALBA Graduate Business School at The American College of Greece , 6-8 Xenias Street GR-11528 , Athens,Greece

No 2016-7, School of Economics Working Paper Series from LeBow College of Business, Drexel University

Abstract: Using a sample of US bank holding companies from 2001 to 2012, we provide evidence that the relationship between size and bank charter value is an inverse U-shape, which implies the existence of an optimal size. More importantly, motivated by Diamond’s (1984) theoretical model of financial intermediation as delegated monitors, we provide evidence that the inverse U-shape relationship, and consequently the optimal size, is determined by the tradeoff between the diversification benefits and monitoring costs, that is, the direct monitoring cost of bank assets and the delegation costs for debtholders and shareholders.

Keywords: Bank Size; Charter Value; Diversification; Monitoring (search for similar items in EconPapers)
JEL-codes: G21 G32 L25 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2016-05-30, Revised 2016-10-17
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://drive.google.com/file/d/0BxRDnd8cEKndSThXa ... 51XXaQA1nShpzigHBuIA Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ris:drxlwp:2016_007

Access Statistics for this paper

More papers in School of Economics Working Paper Series from LeBow College of Business, Drexel University Contact information at EDIRC.
Bibliographic data for series maintained by Richard C. Barnett ().