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Transformation of corporate scope in U.S. banks: patterns and performance implications

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Abstract

Using a novel database containing the time-series details of the organizational structure of individual bank holding companies, this paper presents the first population-wide study of the transformation in business scope of U.S. banks. Expanding scope has a negative impact on performance on average. However, we find that firms whose expansion keeps them closer to the prevailing ?modal bank? are better off compared with those pursuing generic diversification. Moreover, we find that early expanders into particular activities benefit more, whereas late adopters, rather than benefitting by ?fitting the norm,? lose out.

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  • Nicola Cetorelli & Michael G. Jacobides & Samuel Stern, 2017. "Transformation of corporate scope in U.S. banks: patterns and performance implications," Staff Reports 813, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:813
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    References listed on IDEAS

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    1. James R. Barth & R. Dan Brumbaugh & James A. Wilcox, 2000. "Policy Watch: The Repeal of Glass-Steagall and the Advent of Broad Banking," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 191-204, Spring.
    2. repec:bla:jfinan:v:59:y:2004:i:2:p:479-506 is not listed on IDEAS
    3. Antoinette Schoar, 2002. "Effects of Corporate Diversification on Productivity," Journal of Finance, American Finance Association, vol. 57(6), pages 2379-2403, December.
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    Cited by:

    1. Linda S. Goldberg & April Meehl, 2020. "Complexity in Large U.S. Banks," Economic Policy Review, Federal Reserve Bank of New York, vol. 26(2), pages 1-29, March.
    2. Murinde, Victor & Rizopoulos, Efthymios & Zachariadis, Markos, 2022. "The impact of the FinTech revolution on the future of banking: Opportunities and risks," International Review of Financial Analysis, Elsevier, vol. 81(C).
    3. Correa, Ricardo & Goldberg, Linda S., 2022. "Bank complexity, governance, and risk," Journal of Banking & Finance, Elsevier, vol. 134(C).
    4. Joseph P. Hughes & Loretta J. Mester, 2018. "The Performance of Financial Institutions: Modeling, Evidence, and Some Policy Implications," Departmental Working Papers 201805, Rutgers University, Department of Economics.
    5. Martynova, Natalya & Vogel, Ursula, 2022. "Banks’ complexity-risk nexus and the role of regulation," Journal of Banking & Finance, Elsevier, vol. 134(C).
    6. Samuel Antill & Asani Sarkar, 2018. "Is size everything?," Staff Reports 864, Federal Reserve Bank of New York.
    7. Claudia M. Buch & Linda S. Goldberg, 2021. "Complexity and Riskiness of Banking Organizations: Evidence from the International Banking Research Network," Staff Reports 966, Federal Reserve Bank of New York.
    8. Pham, Thi Hoang Anh & Doan, Ngoc Thang, 2023. "Global bank complexity and financial fragility around the world," Economic Systems, Elsevier, vol. 47(1).

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    Keywords

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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