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The effects of big-bank presence on the profit efficiency of small banks in rural markets

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  • Cyree, Ken B.
  • Spurlin, W. Paul
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    Abstract

    Because big banks could impact competition in rural markets, we investigate the effects of big-bank presence on the performance of rural, small banks. When competing against a big bank, rural one-county banks operate at lower levels of proit efficiency, but with higher ROA and increased levels of interest and fee income from loans. Lower profit efficiency and higher returns in the rural markets suggest that big banks possess market power in rural markets and that they can extract rents to earn higher returns with lower than average profit efficiency. Therefore, small banks in rural markets should not fear large competitors. Conversely, customers who rely on loans from rural, small banks are negatively impacted by higher rates and fees on loans when a big bank is present in the market.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Banking & Finance.

    Volume (Year): 36 (2012)
    Issue (Month): 9 ()
    Pages: 2593-2603

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    Handle: RePEc:eee:jbfina:v:36:y:2012:i:9:p:2593-2603

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    Web page: http://www.elsevier.com/locate/jbf

    Related research

    Keywords: Profit efficiency; Market power; Rural banking; Bank competition;

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    Cited by:
    1. Jeon, Jin Q. & Lim, Kwang Kyu, 2013. "Bank competition and financial stability: A comparison of commercial banks and mutual savings banks in Korea," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 25(C), pages 253-272.

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