What drives investment bank performance? The role of risk, liquidity and fees prior to and during the crisis

Emmanuel Mamatzakis and Theodora Bermpei

International Review of Financial Analysis, 2014, vol. 35, issue C, 102-117

Abstract: This paper examines factors that affect the performance of investment banks in the G7 and Switzerland. In particular, we focus on the role of risk, liquidity and investment banking fees. Panel analysis shows that those variables significantly impact upon performance as derived from Stochastic Frontier Analysis (SFA). Given our sample also comprises the financial crisis, we further test for regime switches using dynamic panel threshold analysis. Results show different underlying regimes, in particular over the financial crisis. In addition, a strong positive effect of Z-Score on performance for banks in the regime of low default risk is reported, while fee-income ratio has also a positive impact for banks with low level of fees. On the other hand, liquidity exerts a negative impact. Notably, there is a clear trend of mobility of banks across the two identified threshold regimes with regard to risk a year before the financial crisis. Our results provide evidence that recent regulation reforms regarding capital adequacy and liquidity requirements are on the right track and could enhance performance.

Keywords: Investment banking; Risk; Liquidity; Fees; Dynamic panel threshold analysis (search for similar items in EconPapers)
JEL-codes: D24 G01 G3 L25 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1057521914001045
Full text for ScienceDirect subscribers only

Related works:
Working Paper: What drives investment bank performance? the role of risk, liquidity and fees prior to and during the crisis (2014)
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:eee:finana:v:35:y:2014:i:c:p:102-117

DOI: 10.1016/j.irfa.2014.07.012

Access Statistics for this article

International Review of Financial Analysis is currently edited by B.M. Lucey

More articles in International Review of Financial Analysis from Elsevier
Bibliographic data for series maintained by Catherine Liu ().