Boundaries of the Firm: Evidence from the Banking Industry

51 Pages Posted: 11 Feb 2000 Last revised: 4 Mar 2018

See all articles by James A. Brickley

James A. Brickley

University of Rochester - Simon Business School

James S. Linck

Southern Methodist University (SMU) - Finance Department

Clifford W. Smith

Simon Graduate School of Business, University of Rochester

Date Written: February 1, 2003

Abstract

Agency theory implies that asset ownership and decision authority are complements. Using 1998 data from Texas commercial banks, we test whether the likelihood of local ownership of bank offices increases with the importance of granting local managers greater decision authority (for example, due to location or customer base). Our empirical evidence is consistent with this hypothesis. It suggests that complementarities between strategy and organizational structure can foster differentiation among firms in terms of location, customers, and products. It also supports the growing view that small locally-owned banks have a comparative advantage over large banks within specific environments.

Keywords: Boundaries of the firm, banking, economics of organizations, ownership incentives; agency theory; decision authority; locational decisions; Riegle-Neal Act; community banks, interstate branching

JEL Classification: G32, L22

Suggested Citation

Brickley, James A. and Linck, James S. and Smith, Clifford W., Boundaries of the Firm: Evidence from the Banking Industry (February 1, 2003). Simon School of Business Working Paper No. FR 00-01; Journal of Financial Economics (JFE), Vol. 70, No. 3, 2003. Available at SSRN: https://ssrn.com/abstract=204728 or http://dx.doi.org/10.2139/ssrn.204728

James A. Brickley

University of Rochester - Simon Business School ( email )

Carol Simon Hall 3-160L
Rochester, NY 14627
United States
585-275-3433 (Phone)
585-442-6323 (Fax)

James S. Linck (Contact Author)

Southern Methodist University (SMU) - Finance Department ( email )

United States

Clifford W. Smith

Simon Graduate School of Business, University of Rochester ( email )

Carol Simon Hall 3-202C
Rochester, NY 14627
United States
585-275-3217 (Phone)
585-442-6323 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
1,112
rank
18,063
Abstract Views
4,018
PlumX Metrics