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

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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. 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.
    2. Pham, Tho & Talavera, Oleksandr & Yang, Junhong, 2016. "Multimarket Competition and Profitability: Evidence from Ukrainian banking," MPRA Paper 78763, University Library of Munich, Germany, revised 01 Apr 2017.
    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. Kevin Davis, 2007. "Banking Concentration, Financial Stability and Public Policy," RBA Annual Conference Volume,in: Christopher Kent & Jeremy Lawson (ed.), The Structure and Resilience of the Financial System Reserve Bank of Australia.
    7. 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.
    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. 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.
    10. Ekin Ayşe Özşuca & Elif Akbostancı, 2016. "An Empirical Analysis of the Risk-Taking Channel of Monetary Policy in Turkey," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 52(3), pages 589-609, March.
    11. repec:mes:emfitr:v:52:y:2016:i:3:p:589-609 is not listed on IDEAS
    12. 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.
    13. 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.
    14. repec:spr:jecfin:v:42:y:2018:i:1:d:10.1007_s12197-017-9392-z is not listed on IDEAS
    15. Amel, Dean F. & Prager, Robin A., 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.).

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