In Finance, Size Matters

June 1, 2002

Preview Citation

Format: Chicago

Jong-Kun Lee, and Biaggio Bossone. In Finance, Size Matters, (USA: International Monetary Fund, 2002) accessed September 20, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This study investigates the relationship between production efficiency in financial intermediation and financial system size. The study predicts and tests for the existence of "systemic scale economies" (SSEs), whereby value-maximizing intermediaries operating in large systems are expected to have lower production costs and lower costs of risk absorption and reputation signaling than intermediaries operating in small systems. The study investigates different channels through which the SSEs work their effects through the intermediaries and estimates such effects using a large banking data panel. The study shows strongly supporting evidence in favor of SSEs. It also finds that the institutional environment, the risk environment, and market concentration affect significantly the production efficiency of financial intermediaries.

Subject: Accounting standards, Banking, Commercial banks, GDP measurement, Nonperforming loans

Keywords: Equity capital, Financial market, Production efficiency, Shadow price, WP

Publication Details

Pages:

48
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2002/113
Stock No:

WPIEA1132002
ISBN:

9781451853711
ISSN:

1018-5941

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