Empirical Evidence on Managing Networks: The Case of European Banking

10 Pages Posted: 14 May 2001

See all articles by Nayantara Hensel

Nayantara Hensel

Harvard Business School; US Naval Postgraduate School - Graduate School of Business and Public Policy

Date Written: April 2001

Abstract

With the movement toward globalization, the question of how efficiencies can be achieved through cross-border integration is becoming increasingly important. This paper argues that one avenue for cross-border efficiency is through the greater utilization of firms with under-used distribution channels by other firms with over-used distribution channels. The analysis examines the contemporary European commercial banking industry, and develops an empirical model concerning the degree to which banks' branch networks are over-utilized or under-utilized and what the efficiency implications would be of further organic growth. I find evidence indicating that larger banks are more likely to have heavily utilized branch networks than smaller banks and to exhibit fewer cost efficiencies from building more branches. I find this result both across countries, as well as within countries. The within-country effect suggests that the result is size-driven and can be independent of competitive conditions?larger banks handle more transactions within their existing networks and have higher physical capital costs in opening up new branches. The variance and magnitude of the findings within each country relative to the findings in other countries suggest the impact of factors related to different competitive environments. The findings suggest that cross-border consolidation between larger banks with over-utilized branch networks and smaller banks with under-utilized branch networks could yield cost efficiencies. The larger banks could market a greater diversity of products to an international clientele using the under-utilized distribution channels of the smaller banks.

Suggested Citation

Hensel, Nayantara, Empirical Evidence on Managing Networks: The Case of European Banking (April 2001). EFMA 2001 Lugano Meetings. Available at SSRN: https://ssrn.com/abstract=269889 or http://dx.doi.org/10.2139/ssrn.269889

Nayantara Hensel (Contact Author)

Harvard Business School ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

US Naval Postgraduate School - Graduate School of Business and Public Policy ( email )

555 Dyer Road
Monterey, CA 93943
United States
831-656-3542 (Phone)

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