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research article
Why Does Fast Loan Growth Predict Poor Performance for Banks?
March 1, 2018
From 1973 to 2014, the common stock of U.S. banks with loan growth in the top quartile of banks over a three-year period significantly underperformed the common stock of banks with loan growth in the bottom quartile over the next three years. After the period of high growth, these banks have a lower return on assets and increase their loan loss reserves. The poorer performance of fast-growing banks is not explained by merger activity. The evidence is consistent with banks, analysts, and investors being overoptimistic about the risk of loans extended during bank-level periods of high loan growth.
Type
research article
Authors
Publication date
2018-03-01
Published in
Volume
31
Issue
3
Start page
1014
End page
1063
Peer reviewed
REVIEWED
EPFL units
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Available on Infoscience
October 9, 2018
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