Mapping a Sector’s Scope Transformation and the Value of Following the Evolving Core

67 Pages Posted: 20 Apr 2021

See all articles by Nicola Cetorelli

Nicola Cetorelli

Federal Reserve Bank of New York

Michael G. Jacobides

London Business School

Samuel Stern

University of Michigan at Ann Arbor - Department of Economics, Students

Date Written: April 2021

Abstract

A surprisingly neglected facet of sector evolution is the evolutionary analysis of firms’, and thus a sector’s, scope. Defining a sector as a group of firms that can change their scope over time, we study the transformation of U.S. banking firms. We undertake a sectoral, population-wide study of business-scope transformation, with particular focus on which segments banks expand into. As financial intermediation evolved, a continuously shifting set of activities became associated with “core banking,” with scope changing and relatedness itself (measured through coincidence) evolving over the banking sector’s history. Banks that expand scope while staying close to this evolving core attain net performance benefits. Identification tests show that the benefits of following the evolving core are robust to endogeneity.

Keywords: scope, relatedness, diversification, industry evolution, expansion

JEL Classification: G21, L23, D22

Suggested Citation

Cetorelli, Nicola and Jacobides, Michael G. and Stern, Samuel, Mapping a Sector’s Scope Transformation and the Value of Following the Evolving Core (April 2021). FRB of New York Staff Report No. 963, Available at SSRN: https://ssrn.com/abstract=3826601 or http://dx.doi.org/10.2139/ssrn.3826601

Nicola Cetorelli (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5071 (Phone)
212-720-8363 (Fax)

HOME PAGE: http://nyfedeconomists.org/cetorelli/

Michael G. Jacobides

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom
+44 20 7706 6725 (Phone)
+44 20 7724 7875 (Fax)

HOME PAGE: http://faculty.london.edu/mjacobides/

Samuel Stern

University of Michigan at Ann Arbor - Department of Economics, Students ( email )

Ann Arbor, MI
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
4
Abstract Views
22
PlumX Metrics