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The Role of the Local Business Environment in Banking Consolidation

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Author Info
Luca Colombo () (DISCE, Università Cattolica)
Gilberto Turati () (DISCE, Università Cattolica)

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Abstract

We study whether local economic conditions in different areas have an impact on the magnitude and direction of the concentration process of a banking industry. By using probit and count data (ZIP) models to study the consolidation of the Italian banking sector in the second half of the 1990s, we document a significant direct impact of the local ‘business environment’ on the concentration of the industry at the regional level. This effect complements the well known indirect effect of macroeconomic characteristics on the profitability and efficiency of banks. We also show that institutional and organizational variables affect the likelihood and number of M&A deals, and help explaining differences in performance. Our results appear to be robust to different specifications, and to a number of robustness checks, including alternative sets of variables defining local ‘business environment conditions’.

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File URL: http://www.unicatt.it/Istituti/EconomiaFinanza/Quaderni/ief0076.pdf
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Publisher Info
Paper provided by Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE) in its series DISCE - Quaderni dell'Istituto di Economia e Finanza with number ief0076.

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Length: nn pages 28
Date of creation: Nov 2007
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Handle: RePEc:ctc:serie3:ief0076

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Web page: http://www.unicatt.it/Istituti/EconomiaFinanza
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Related research
Keywords: Banking M&As local business environment profitability efficiency credit policies count data models

Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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    Other versions:
  7. Rasmusen, Eric, 1988. "Mutual Banks and Stock Banks," Journal of Law & Economics, University of Chicago Press, vol. 31(2), pages 395-421, October.
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  9. Focarelli, Dario & Panetta, Fabio & Salleo, Carmelo, 2002. "Why Do Banks Merge?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(4), pages 1047-66, November.
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  12. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "Does Local Financial Development Matter?," The Quarterly Journal of Economics, MIT Press, vol. 119(3), pages 929-969, August. [Downloadable!] (restricted)
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  13. Focarelli, Dario & Pozzolo, Alberto Franco, 2003. "Where Do Banks Expand Abroad? An Empirical Analysis," Economics & Statistics Discussion Papers esdp03009, University of Molise, Dept. SEGeS. [Downloadable!]
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  14. Goddard, John & Molyneux, Phil & Wilson, John O S, 2004. "Dynamics of Growth and Profitability in Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 1069-90, December.
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