Why Does Fast Loan Growth Predict Poor Performance for Banks?

Ruediger Fahlenbrach, Robert Prilmeier and René Stulz

The Review of Financial Studies, 2018, vol. 31, issue 3, 1014-1063

Abstract: From 1973 to 2014, the common stock of U.S. banks with loan growth in the top quartile of banks over a three-year period significantly underperformed the common stock of banks with loan growth in the bottom quartile over the next three years. After the period of high growth, these banks have a lower return on assets and increase their loan loss reserves. The poorer performance of fast-growing banks is not explained by merger activity. The evidence is consistent with banks, analysts, and investors being overoptimistic about the risk of loans extended during bank-level periods of high loan growth. Received September 14, 2016; editorial decision May 28, 2017 by Editor Itay Goldstein.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (31)

Downloads: (external link)
http://hdl.handle.net/10.1093/rfs/hhx109 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Why Does Fast Loan Growth Predict Poor Performance for Banks? (2016)
Working Paper: Why Does Fast Loan Growth Predict Poor Performance for Banks? (2016)
Working Paper: Why Does Fast Loan Growth Predict Poor Performance for Banks? (2016)
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:oup:rfinst:v:31:y:2018:i:3:p:1014-1063.

Ordering information: This journal article can be ordered from
https://academic.oup.com/journals

Access Statistics for this article

The Review of Financial Studies is currently edited by Itay Goldstein

More articles in The Review of Financial Studies from Society for Financial Studies Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.. Contact information at EDIRC.
Bibliographic data for series maintained by Oxford University Press ().