Determinants influencing the profitability of financial intermediaries; efficiency through economies of scale or market power: An empirical analysis.

摘要

The purpose of this research study was to ascertain or determine what relationship, positive or negative, exists between the total size, per cent of market share, and the efficiency of employees had on profitability of financial intermediaries, and the effect that relationship had on the Return on Assets (ROA) and Return on Equity (ROE). Financial information and ratios from the Call Reports of June 1998 supplied to The Federal Reserve Bank by each financial intermediary were used for the control group.; In order to get a better and clearer understanding, the research analysis was broken down into two parts that addressed two dependent variables: (a) Return on Assets, and (b) Return on Equity.; Based on prior research and the theories of economies of scale and monopoly power, it was hypothesized that the profitability of financial intermediaries was being caused not by efficiency due to economies of scale (size), but control of the market caused by monopoly or oligopoly power. Market control was determined by the percentage of the demand deposits available in the strategic marketing area as defined by the Federal Reserve Bank. Efficiency due to economies of scale was defined based on the number of employees, the amount of costs per employee, and the amount of income per employee. The independent variables were divided into two groups to reflect size and efficiency.; Referencing the Return on Assets, the results indicated that for the June 1998 time frame, for the financial intermediaries that were members of the Third Federal Reserve District, the independent variables listed had no effect on the Return on Assets.; Referencing the Return on Equity, the results indicated that for the June 1998 time frame, for the financial intermediaries that were members of the Third Federal Reserve District, the independent variables listed had no effect on Return on Equity.