| Summary: | 碩士 === 銘傳大學 === 財務金融學系碩士在職專班 === 97 === This study aims to examine the differences and changes in the business performance of investment banks and commercial banks worldwide in markets at varying stages of development. We use five major financial variables associated with the financial operations of banks – equity ratio, operating cost ratio, return on equity, return on asset, and Tobin Q to take into account the bank’s capital adequacy, management capability and profitability. This study explores the changes in the performance of representative investment banks and commercial banks worldwide after the financial tsunami.
Our empirical results show that before the subprime credit crisis, the capital adequacy of investment banks were markedly inferior to those of commercial banks, whereas their management capability and return on equity were markedly superior to those of commercial banks and their risk levels were not significantly higher than those of commercial banks. We also find that after the occurrence of subprime credit crisis, the capital adequacy of investment banks were still markedly inferior to those of commercial banks, and although their management capability, profitability and going-concern value were not significantly inferior to those of commercial banks, their risk levels were significantly higher than those of commercial banks. In addition, after the occurrence of subprime credit crisis, the management ability, profitability and going-concern value of both investment banks and commercial banks turned for the worse, while their management ability and profitability risks rose.
Our study finds that the sizes of capital and total assets do not have a bearing on the relative financial performance of investment banks and commercial banks or their respective financial performance both before and after the subprime credit crisis. However, after the subprime credit crisis, the management capability, return on equity and going-concern value of investment banks in developed markets were significantly inferior to those of commercial banks in the same markets. On the other hand, the financial performance of commercial banks in the emerging markets was not significantly worse and their risk levels did not rise after the subprime credit crisis.
With respect to the implied meaning of changes in financial performance, we can tell from the sample cohorts in developed markets that after the subprime credit crisis, the operating cost ratios of investment banks and commercial banks escalated significantly, while their profitability tumbled markedly. Meanwhile, the capital adequacy and profitability of investment banks were significantly inferior to those of commercial banks and their operating cost was significantly higher than that of commercial banks, indicating that investment banks have in general sustained huge investment loss and asset impairment during the subprime credit crisis that led to sharp drop in profits. The significantly inferior capital adequacy, higher operating costs and profit decline of investment banks after the subprime credit crisis imply that investment banks that used to run their business with high degree of financial leverage, non-transparent pay structure, high bonus, and less investment restrictions were far more seriously impacted by the subprime credit crisis than commercial banks.
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