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      The Cross Section of Bank Value
      02 May 2017Working Paper Summaries

      The Cross Section of Bank Value

      by Mark Egan, Stefan Lewellen, and Adi Sunderam
      How do commercial banks create value? This paper represents the first attempt to empirically identify the primary determinants of cross-sectional variation in bank value. Among the findings: A bank's ability to produce deposits is by far the most important determinant in explaining cross-sectional variation in bank value.
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      Author 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.

      Paper Information

      • Full Working Paper Text
      • Working Paper Publication Date: May 2017
      • HBS Working Paper Number: NBER 23291
      • Faculty Unit(s): Finance
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      Adi Sunderam
      Adi Sunderam
      Professor of Business Administration
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