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BHC brilliance in the fog of uncertainty: Illuminating trends in bank performance

Author

Listed:
  • Minh N. Nguyen

    (Banking Academy of Vietnam)

  • Hung M. Pham

    (Banking Academy of Vietnam)

  • Anh Phan

    (Banking Academy of Vietnam)

  • Ahmed W. Alam

    (Kean University)

  • Dung V. Tran

    (Banking Academy of Vietnam)

Abstract

This paper investigates the impact of economic policy uncertainty (EPU) on U.S. banks' performance over the period 2001:Q1-2021:Q1. The empirical results indicate that EPU exerts an adverse influence on banks’ return on assets (ROA), but this effect diminishes with the increasing level of bank ROA. The baseline result remains resilient to using state-level EPU as an alternative measure of policy uncertainty. In addition, the findings survive a battery of robustness and endogeneity tests, including instrumental variable (IV) regressions. It is observed that EPU exhibits a differential impact on banks' ROA during the 2008 financial crisis and the COVID-19 pandemic. Finally, it is found that while the deterring effect of EPU is more pronounced for banks with greater earning opacity, it is significantly mitigated by a bank’s search for yield, managerial ability, and diversified business models.

Suggested Citation

  • Minh N. Nguyen & Hung M. Pham & Anh Phan & Ahmed W. Alam & Dung V. Tran, 2024. "BHC brilliance in the fog of uncertainty: Illuminating trends in bank performance," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 48(2), pages 437-461, June.
    • Handle: RePEc:spr:jecfin:v:48:y:2024:i:2:d:10.1007_s12197-024-09664-z
    DOI: 10.1007/s12197-024-09664-z
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    More about this item

    Keywords

    Economic policy uncertainty; Bank performance; Managerial ability; Financial crisis; COVID-19 pandemic;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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