An empirical investigation of new bank performance

Of the past studies exploring the establishment of new banks, most have been concerned with the impact of new bank entry on the performance of existing banks. Unfortunately, very little is known about the performance of new banks per se. The relatively little empirical research is surprising given the importance of these vital institutions to the local communities they serve.

The present study empirically investigates the performance behavior of newly chartered banks. Since bank performance is a multidimensional concept that cannot be fully captured by a single variable, canonical correlation analysis (CCA) is used for the analysis. With CCA, various measures of performance can be simultaneously related to a set of external and internal variables which influence performance. The results show that several endogenous factors were among the most important determinants of new bank success. Specifically, the bank's cost structure, size, and the composition of the loan portfolio were critical influences