The Effects of Competition from Large, Multimarket Firms on the Performance of Small, Single-Market Firms: Evidence from the Banking Industry

37 Pages Posted: 28 Feb 2005

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Astrid Andrea Dick

Federal Reserve Bank of New York

Lawrence G. Goldberg

University of Miami - Department of Finance

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 2005

Abstract

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.

Keywords: Banks, Community Banking, Bank Size, Multimarket Banks, Technological Progress

JEL Classification: G21, G28, L11, O33

Suggested Citation

Berger, Allen N. and Dick, Astrid Andrea and Goldberg, Lawrence G. and White, Lawrence J., The Effects of Competition from Large, Multimarket Firms on the Performance of Small, Single-Market Firms: Evidence from the Banking Industry (April 2005). FEDS Working Paper No. 2005-15. Available at SSRN: https://ssrn.com/abstract=673862 or http://dx.doi.org/10.2139/ssrn.673862

Allen N. Berger (Contact Author)

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)

Wharton Financial Institutions Center

Philadelphia, PA 19104-6367
United States

European Banking Center

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Astrid Andrea Dick

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Lawrence G. Goldberg

University of Miami - Department of Finance

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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