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

37 Pages Posted: 13 Oct 2008

See all articles by Allen N. Berger

Allen N. Berger

University of South Carolina - Darla Moore School of Business

Astrid Andrea Dick

Federal Reserve Bank of New York

Lawrence G. Goldberg

University of Miami - Department of Finance

Lawrence J. White

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

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Date Written: February 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 shedlight 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

Suggested Citation

Berger, Allen N. and Dick, Astrid Andrea and Goldberg, Lawrence G. and White, Lawrence J. 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 (February 2005). NYU Working Paper No. 2451/26096, Available at SSRN: https://ssrn.com/abstract=1282527

Allen N. Berger (Contact Author)

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

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Astrid Andrea Dick

Federal Reserve Bank of New York ( email )

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Lawrence G. Goldberg

University of Miami - Department of Finance

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Lawrence J. White

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

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Stern School of Business, New York University ( email )

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212-995-4218 (Fax)

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