IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

The effects of competition from large, multimarket firms on the performance of small, single-market firms: evidence from the banking industry

  • Allen N. Berger
  • Astrid A. Dick
  • Lawrence G. Goldberg
  • Lawrence J. White

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, and on the question of how community banks should be defined.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.federalreserve.gov/pubs/feds/2005/200515/200515abs.html
Download Restriction: no

File URL: http://www.federalreserve.gov/pubs/feds/2005/200515/200515pap.pdf
Download Restriction: no

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2005-15.

as
in new window

Length:
Date of creation: 2005
Date of revision:
Handle: RePEc:fip:fedgfe:2005-15
Contact details of provider: Postal:
20th Street and Constitution Avenue, NW, Washington, DC 20551

Web page: http://www.federalreserve.gov/

More information through EDIRC

Order Information: Web: http://www.federalreserve.gov/pubs/feds/fedsorder.html

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Allen N. Berger & Gregory F. Udell, 2001. "Small business credit availability and relationship lending: the importance of bank organizational structure," Finance and Economics Discussion Series 2001-36, Board of Governors of the Federal Reserve System (U.S.).
  2. Joseph P. Hughes & Choon-Geol Moon, 1997. "Efficient Banking Under Interstate Branching," Departmental Working Papers 199609, Rutgers University, Department of Economics.
  3. Allen N. Berger & Loretta J. Mester, 1997. "Inside the black box: what explains differences in the efficiencies of financial institutions?," Finance and Economics Discussion Series 1997-10, Board of Governors of the Federal Reserve System (U.S.).
  4. Demsetz, Rebecca S & Strahan, Philip E, 1997. "Diversification, Size, and Risk at Bank Holding Companies," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(3), pages 300-313, August.
  5. Berger, Allen N. & Saunders, Anthony & Scalise, Joseph M. & Udell, Gregory F., 1998. "The effects of bank mergers and acquisitions on small business lending," Journal of Financial Economics, Elsevier, vol. 50(2), pages 187-229, November.
  6. Rhoades, Stephen A., 1998. "The efficiency effects of bank mergers: An overview of case studies of nine mergers," Journal of Banking & Finance, Elsevier, vol. 22(3), pages 273-291, March.
  7. Allen N. Berger & Loretta J. Mester, 2001. "Explaining the Dramatic Changes in Performance of U.S. Banks: Technological Change, Deregulation and Dynamic Changes in Competition," Center for Financial Institutions Working Papers 01-22, Wharton School Center for Financial Institutions, University of Pennsylvania.
  8. Berger, Allen N. & Hanweck, Gerald A. & Humphrey, David B., 1987. "Competitive viability in banking : Scale, scope, and product mix economies," Journal of Monetary Economics, Elsevier, vol. 20(3), pages 501-520, December.
  9. Roll, Richard, 1986. "The Hubris Hypothesis of Corporate Takeovers," The Journal of Business, University of Chicago Press, vol. 59(2), pages 197-216, April.
  10. Mitchell A. Petersen & Raghuram G. Rajan, 2002. "Does Distance Still Matter? The Information Revolution in Small Business Lending," Journal of Finance, American Finance Association, vol. 57(6), pages 2533-2570, December.
  11. Jalal Akhavein & W. Scott Frame & Lawrence J. White, 2001. "The Diffusion of Financial Innovations: An Examination of The Adoption of Small Business Credit Scoring by Large Banking Organizations," Center for Financial Institutions Working Papers 01-19, Wharton School Center for Financial Institutions, University of Pennsylvania.
  12. Allen N. Berger & Robert De Young, 2001. "The effects of geographic expansion on bank efficiency," Finance and Economics Discussion Series 2001-03, Board of Governors of the Federal Reserve System (U.S.).
  13. Berger, A.N. & Goldberg, L.G. & White, L.J., 2001. "The Effects of Dynamic Change in Bank Competition on the Supply of Small Business Credit," New York University, Leonard N. Stern School Finance Department Working Paper Seires 01-07, New York University, Leonard N. Stern School of Business-.
  14. DeYoung, Robert & Hasan, Iftekhar, 1998. "The performance of de novo commercial banks: A profit efficiency approach," Journal of Banking & Finance, Elsevier, vol. 22(5), pages 565-587, May.
  15. Allen N. Berger & Nathan H. Miller & Mitchell A. Petersen & Raghuram G. Rajan & Jeremy C. Stein, 2002. "Does Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small Banks," NBER Working Papers 8752, National Bureau of Economic Research, Inc.
  16. Courchane, Marsha & Nickerson, David & Sullivan, Richard, 2002. "Investment in internet banking as a real option: theory and tests," Journal of Multinational Financial Management, Elsevier, vol. 12(4-5), pages 347-363.
  17. Kwangwoo Park & George Pennacchi, 2004. "Harming depositors and helping borrowers: the disparate impact of bank consolidation," Proceedings 939, Federal Reserve Bank of Chicago.
  18. Karen Furst & William Lang & Daniel Nolle, 2002. "Internet Banking," Journal of Financial Services Research, Springer;Western Finance Association, vol. 22(1), pages 95-117, August.
  19. Rebel A. Cole & Lawrence G. Goldberg & Lawrence J. White, 1999. "Cookie-cutter versus character: the micro structure of small business lending by large and small banks," Proceedings 777, Federal Reserve Bank of Chicago.
  20. Jalal D. Akhavein & Allen N. Berger & David B. Humphrey, 1996. "The Effects of Megamergers on Efficiency and Prices: Evidence from a Bank Profit Function," Center for Financial Institutions Working Papers 96-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
  21. Robert DeYoung & William Hunter & Gregory Udell, 2004. "The Past, Present, and Probable Future for Community Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 25(2), pages 85-133, April.
  22. Berger, Allen N, 2003. " The Economic Effects of Technological Progress: Evidence from the Banking Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(2), pages 141-76, April.
  23. Frame, W Scott & Srinivasan, Aruna & Woosley, Lynn, 2001. "The Effect of Credit Scoring on Small-Business Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 813-25, August.
  24. Erik Heitfield & Robin Prager, 2004. "The Geographic Scope of Retail Deposit Markets," Journal of Financial Services Research, Springer;Western Finance Association, vol. 25(1), pages 37-55, February.
  25. W. Scott Frame & Lynn Woosley, 2004. "Credit Scoring and the Availability of Small Business Credit in Low- and Moderate-Income Areas," The Financial Review, Eastern Finance Association, vol. 39(1), pages 35-54, 02.
  26. Lawrence J. Radecki, 1998. "The expanding geographic reach of retail banking markets," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 15-34.
  27. Allen N. Berger & Seth D. Bonime & Lawrence G. Goldberg & Lawrence J. White, 2004. "The Dynamics of Market Entry: The Effects of Mergers and Acquisitions on Entry in the Banking Industry," The Journal of Business, University of Chicago Press, vol. 77(4), pages 797-834, October.
  28. Joseph P. Hughes & William W. Lang & Loretta J. Mester, 1998. "The dollars and sense of bank consolidation," Working Papers 98-10, Federal Reserve Bank of Philadelphia.
  29. Hancock, Diana & Humphrey, David B. & Wilcox, James A., 1999. "Cost reductions in electronic payments: The roles of consolidation, economies of scale, and technical change," Journal of Banking & Finance, Elsevier, vol. 23(2-4), pages 391-421, February.
  30. Dean F. Amel & Martha Starr-McCluer, 2001. "Market definition in banking: recent evidence," Finance and Economics Discussion Series 2001-16, Board of Governors of the Federal Reserve System (U.S.).
  31. Allen N. Berger & Lawrence G. Goldberg & Lawrence J. White, 2001. "The Effects of Dynamic Changes in Bank Competition on the Supply of Small Business Credit," Review of Finance, European Finance Association, vol. 5(1-2), pages 115-139.
  32. Williamson, Oliver E, 1988. " Corporate Finance and Corporate Governance," Journal of Finance, American Finance Association, vol. 43(3), pages 567-91, July.
  33. Timothy Hannan, 2003. "Changes in Non-Local Lending to Small Business," Journal of Financial Services Research, Springer;Western Finance Association, vol. 24(1), pages 31-46, August.
  34. Allen N. Berger & David B. Humphrey, 1992. "Megamergers in banking and the use of cost efficiency as an antitrust defense," Finance and Economics Discussion Series 203, Board of Governors of the Federal Reserve System (U.S.).
  35. Karen Furst & William Lang & Daniel Nolle, 2002. "Internet Banking," Journal of Financial Services Research, Springer;Western Finance Association, vol. 27(6), pages 251-251, August.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:fip:fedgfe:2005-15. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Franz Osorio)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.