Investment Policy, Financing Policy, and Performance-Characteristics of Denovo Savings and Loan Associations

Document Type

Article

Publication Date

4-1-1992

Department

Finance, Real Estate, and Business Law

Abstract

This paper develops a simultaneous equation model to investigate the investment policies, financing policies, and risk/return characteristics of de novo thrift institutions. A model to explain state entry rates for de novo institutions is also presented. Entry dates are significantly influenced by investment powers as the numbers of de novo charters are found to be significantly higher in states with the most liberal set of permissible activities. Economic growth and the demand for financial services also contributed to higher entry rates. Utilization of the liberal powers did not, however, contribute positively to returns. Firms with riskier asset portfolios were found to have lower realized returns. Efficiency in operations and strong capitalization were found to be positively associated with higher returns.

Publication Title

Journal of Banking and Finance

Volume

16

Issue

2

First Page

313

Last Page

330

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