The Effects of Geographic Expansion on Bank Efficiency

By Allen N. Berger, Robert DeYoung. 2000

415 citations recorded by the source corpus.

We assess the effects of geographic expansion on bank efficiency, using cost and profit efficiencies estimated for over 7000 U.S. banks from 1993 to 1998. We find both positive and negative links between geographic scope and bank efficiency. Parent organizations exercise some control over the efficiency of their affiliates, although this control tends to dissipate with the distance to the affiliate. However, on average, distance-related efficiency effects tend to be modest, and our results suggest that some efficient organizations can export efficient practices to their affiliates and overwhelm any effects of distance. The results imply there may be no particular optimal geographic scope for banking organizations—some may operate efficiently within a single region, while others may operate efficiently on a nationwide or international basis.

Subfields: Economics and Econometrics, Finance, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/1528cf17bf34bc51075cfcc1b381832eec517cf2

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Finance

In Management Science and Operations Research

Citations in the corpus

Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure (2002, neutral): “…for bank holding companies to control the efficiency of small banks that are located further away from headquarters, consistent with the possibility that small bank activities, possibly including relationship lending, may be difficult to control from a great distance (Berger and DeYoung, 2001).”
Internal Capital Markets and Lending by Multinational Bank Subsidiaries (2006, neutral): “Berger and DeYoung (2001) show that bank holdings which choose to be geographically dispersed are banks that are relatively good at controlling distant affiliates. Senior management of expanding banks may also, at least temporarily, focus on recently purchased remote subsidiaries while exercising le”
Vicarious Learning from the Failures and Near-Failures of Others: Evidence from the U.S. Commercial Banking Industry (2007, background): “Prior banking studies have defined a bank’s market using different geographic units, such as state, metropolitan statistical area, county, and regulatory district (e.g., Berger & DeYoung, 2001).”
Technological Progress and the Geographic Expansion of the Banking Industry (2002, neutral): “Berger and DeYoung (2001) found that the affiliates of banking organizations with 10 or more affiliates tend to exhibit above-average efficiency.”
Competition and regulation in the banking sector: A review of the empirical evidence on the sources of bank rents (2007, background): “Berger and DeYoung (2001) document how efficiency of bank branches slips somewhat as the distance between branch and headquarters of the bank increases (see also 55 Bos and Kolari (2006)).”
The Economic Effects of Technological Progress: Evidence from the Banking Industry (2003, background): “…found better risk-expected return frontiers for banks operating in more states (e.g., Hughes, Lang, Mester, and Moon 1996, 1999, Demsetz and Strahan 1997), but a cross-section study of the effects of distance on cost and profit efficiency found slightly negative effects (Berger and DeYoung 2001).”
Multinational banks and the global financial crisis: Weathering the perfect storm? (2014, background): “Indeed, senior management of expanding banks may temporarily focus more on recently purchased remote subsidiaries and less on nearby subsidiaries that have been part of the holding for longer (Berger and DeYoung 2001).”
The Ability of Banks to Lend to Informationally Opaque Small Businesses (2001, background): “Finally, one study found that it is difficult for bank holding companies to control the efficiency of small banks located at a significant distance from their holding company headquarters, consistent with the possibility that small bank activities, possibly including relationship lending, may be dif”