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Accounting Income and Market Prices Explaining CoreDeposit Premiums

Accounting Income and Market Prices Explaining CoreDeposit Premiums Coredeposit franchises usually fetch substantial premiums when placed on the market. Those premiums are consistent with the coredeposit hypothesis because of limitations on competition rationing of charters, deposits provide belowmarket funds to financial intermediaries Spellman, 1982, Chapter 3. However, two other hypotheses can explain coredeposit premiums. The first holds that generally accepted accounting principles GAAP misallocate the costs of developing a coredeposit base, by charging such costs against current income rather than capitalizing them as an asset coredeposit premiums merely represent a normal return to the costs of developing a coredeposit base. The second holds that coredeposit premiums arise from banks' good reputation goodwill. A test which can discriminate between the three hypotheses is needed. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Managerial Finance Emerald Publishing

Accounting Income and Market Prices Explaining CoreDeposit Premiums

Managerial Finance , Volume 23 (2): 23 – Feb 1, 1997

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
0307-4358
DOI
10.1108/eb018608
Publisher site
See Article on Publisher Site

Abstract

Coredeposit franchises usually fetch substantial premiums when placed on the market. Those premiums are consistent with the coredeposit hypothesis because of limitations on competition rationing of charters, deposits provide belowmarket funds to financial intermediaries Spellman, 1982, Chapter 3. However, two other hypotheses can explain coredeposit premiums. The first holds that generally accepted accounting principles GAAP misallocate the costs of developing a coredeposit base, by charging such costs against current income rather than capitalizing them as an asset coredeposit premiums merely represent a normal return to the costs of developing a coredeposit base. The second holds that coredeposit premiums arise from banks' good reputation goodwill. A test which can discriminate between the three hypotheses is needed.

Journal

Managerial FinanceEmerald Publishing

Published: Feb 1, 1997

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