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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

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.

Suggested Citation

  • Cyree, Ken B. & Spurlin, W. Paul, 2012. "The effects of big-bank presence on the profit efficiency of small banks in rural markets," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2593-2603.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:9:p:2593-2603
    DOI: 10.1016/j.jbankfin.2012.05.015
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    Cited by:

    1. repec:eee:spacre:v:17:y:2014:i:1:p:78-87 is not listed on IDEAS
    2. 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, vol. 25(C), pages 253-272.
    3. Shiyi Chen & Wolfgang K. Härdle & Li Wang, 2014. "Estimation and Determinants of Chinese Banks’ Total Factor Efficiency: A New Vision Based on Unbalanced Development of Chinese Banks and Their Overall Risk," SFB 649 Discussion Papers SFB649DP2014-068, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    4. repec:spr:jecfin:v:42:y:2018:i:1:d:10.1007_s12197-017-9392-z is not listed on IDEAS

    More about this item

    Keywords

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

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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