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Competition from Large, Multimarket Firms and the Performance of Small, Single-Market Firms: Evidence from the Banking Industry

Author

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  • ALLEN N. BERGER
  • ASTRID A. DICK
  • LAWRENCE G. GOLDBERG
  • LAWRENCE J. WHITE

Abstract

We offer and test two competing hypotheses for the consolidation trend in banking using U.S. banking industry data over the period 1982-2000. Under the "efficiency hypothesis", technological progress improved the performance of large, multimarket firms relative to small, single-market firms, whereas under the "hubris hypothesis", consolidation was largely driven by corporate hubris. Our results are consistent with an empirical dominance of the efficiency hypothesis over the hubris hypothesis-on net, technological progress allowed large, multimarket banks to compete more effectively against small, single-market banks in the 1990s than in the 1980s. We also isolate the extent to which technological progress occurred through scale versus geographic effects and how they affected the performance of small, single-market banks through revenues versus costs. The results may shed light as well on some of the research and policy issues related to community banking. Copyright 2007 The Ohio State University.

Suggested Citation

  • Allen N. Berger & Astrid A. Dick & Lawrence G. Goldberg & Lawrence J. White, 2007. "Competition from Large, Multimarket Firms and the Performance of Small, Single-Market Firms: Evidence from the Banking Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2-3), pages 331-368, March.
    • Handle: RePEc:mcb:jmoncb:v:39:y:2007:i:2-3:p:331-368
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    Cited by:

    1. Mark Carlson & Kris James Mitchener, 2009. "Branch Banking as a Device for Discipline: Competition and Bank Survivorship during the Great Depression," Journal of Political Economy, University of Chicago Press, vol. 117(2), pages 165-210, April.
    2. Carletti, Elena & Hartmann, Philipp & Ongena, Steven, 2015. "The economic impact of merger control legislation," International Review of Law and Economics, Elsevier, vol. 42(C), pages 88-104.
    3. Nathan H. Miller, 2008. "Competition When Consumers Value Firm Scope," EAG Discussions Papers 200807, Department of Justice, Antitrust Division.
    4. De Jonghe, Olivier & Vennet, Rudi Vander, 2008. "Competition versus efficiency: What drives franchise values in European banking?," Journal of Banking & Finance, Elsevier, vol. 32(9), pages 1820-1835, September.
    5. Hannan, Timothy H. & Prager, Robin A., 2009. "The profitability of small single-market banks in an era of multi-market banking," Journal of Banking & Finance, Elsevier, vol. 33(2), pages 263-271, February.
    6. Andrew Cohen & Michael Mazzeo, 2010. "Investment Strategies and Market Structure: An Empirical Analysis of Bank Branching Decisions," Journal of Financial Services Research, Springer;Western Finance Association, vol. 38(1), pages 1-21, August.
    7. Hirtle, Beverly, 2007. "The impact of network size on bank branch performance," Journal of Banking & Finance, Elsevier, vol. 31(12), pages 3782-3805, December.
    8. Bargigli, Leonardo & Gallegati, Mauro & Riccetti, Luca & Russo, Alberto, 2014. "Network analysis and calibration of the “leveraged network-based financial accelerator”," Journal of Economic Behavior & Organization, Elsevier, vol. 99(C), pages 109-125.
    9. Robert Feinberg, 2008. "Explaining the Credit Union Entry Decision, and Implications for Performance," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 33(1), pages 81-91, August.
    10. Ekin Ayse Ozsuca & Elif Akbostanci, 2012. "An Empirical Analysis of the Risk Taking Channel of Monetary Policy in Turkey," ERC Working Papers 1208, ERC - Economic Research Center, Middle East Technical University, revised Dec 2012.
    11. Bitar, Mohammad & Tarazi, Amine, 2022. "Individualism, formal institutional environments, and bank capital decisions," Journal of Corporate Finance, Elsevier, vol. 76(C).
    12. Benjamin Hippert & André Uhde & Sascha Tobias Wengerek, 2019. "Determinants of CDS trading on major banks," Working Papers Dissertations 51, Paderborn University, Faculty of Business Administration and Economics.
    13. Pham, Tho & Talavera, Oleksandr & Yang, Junhong, 2016. "Multimarket Competition and Profitability: Evidence from Ukrainian banking," MPRA Paper 72376, University Library of Munich, Germany.
    14. Kwangwoo Park & George Pennacchi, 2009. "Harming Depositors and Helping Borrowers: The Disparate Impact of Bank Consolidation," Review of Financial Studies, Society for Financial Studies, vol. 22(1), pages 1-40, January.
    15. Dean F. Amel & Robin A. Prager, 2014. "Community Bank Performance: How Important are Managers?," Finance and Economics Discussion Series 2014-26, Board of Governors of the Federal Reserve System (U.S.).
    16. Gianandrea Goisis & Maria Giorgetti & Paola Parravicini & Francesco Salsano & Giovanna Tagliabue, 2009. "Economies of scale and scope in the European banking sector," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 56(3), pages 227-242, September.
    17. Kwame Mireku & Emmanuel Akomeah Sakyi & Joseph Akadeagre Agana, 2018. "Does Commercial Banks Presence Enhance Profitability in Ghana?," Global Business Review, International Management Institute, vol. 19(6), pages 1449-1461, December.
    18. Bos, Jaap W.B. & Degl'Innocenti, Marta, 2018. "Banking on industry: the impact of financial services on regional industrial structure and development," Research Memorandum 009, Maastricht University, Graduate School of Business and Economics (GSBE).
    19. Gregory McKee & Albert Kagan, 2018. "Community bank structure an x-efficiency approach," Review of Quantitative Finance and Accounting, Springer, vol. 51(1), pages 19-41, July.
    20. Kevin Davis, 2007. "Banking Concentration, Financial Stability and Public Policy," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & Jeremy Lawson (ed.),The Structure and Resilience of the Financial System, Reserve Bank of Australia.
    21. Michalak, Tobias C. & Uhde, André, 2012. "Credit risk securitization and bank soundness in Europe," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(3), pages 272-285.
    22. John K. Ashton & Andros Gregoriou, 2014. "The Influence of Banking Centralization on Depositors: Regional Heterogeneities in the Transmission of Monetary Policy," Regional Studies, Taylor & Francis Journals, vol. 48(9), pages 1467-1482, September.
    23. Saadet Kasman & Adnan Kasman, 2016. "Multimarket contact, market power and financial stability in the Turkish banking industry," Empirical Economics, Springer, vol. 50(2), pages 361-382, March.
    24. Ken B. Cyree & Brandon C. L. Morris, 2018. "The effects of income and population demographics on single-county bank performance," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(1), pages 174-190, January.
    25. Mudeer Ahmed Khattak & Buerhan Saiti, 2021. "Banks' environmental policy and business outcomes: The role of competition," Business Strategy and the Environment, Wiley Blackwell, vol. 30(1), pages 302-317, January.

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