The Cross Section of Bank Value

By: Mark Egan, Stefan Lewellen and Adi Sunderam

Format:Print
| Language:English

Abstract

We study the determinants of value creation within U.S. commercial banks. We begin by constructing two new measures of bank productivity: one focused on deposit-taking productivity and one focused on asset productivity. We then use these measures to evaluate the cross-section of bank value. Both productivity measures are strongly value relevant, with variation in banks' deposit productivity responsible for the majority of variation in bank value. We also find evidence consistent with synergies between deposit-taking and lending activities: banks with high deposit productivity have high asset productivity, a relationship driven by the tendency of deposit-productive banks to hold illiquid loans. Our results suggest that both sides of the balance sheet contribute meaningfully to bank value creation, with the liability side playing a primary role.

Keywords

Banks And Banking; Productivity; Banks And Banking; Valuation; Performance Productivity; Value Creation

Citation

Egan, Mark, Stefan Lewellen, and Adi Sunderam. "The Cross Section of Bank Value." NBER Working Paper Series, No. 23291, March 2017. (Revise and Resubmit at the Review of Financial Studies.)