Abstract
The prospect of unlimited nationwide banking raises a question about the viability of small independent banks in competition with large, geographically diversified banking organizations. This study addresses the issue of small bank viability by focusing on the relative performance of independent banks and bank holding company subsidiaries in a regime of intrastate banking, where “performance” is measured by the cumulative change in a bank's local market share over time. Two regression equations of the same general form are estimated using the same sample of independent and affiliated banks, albeit for different time periods to distinguish between the short-term and long-term effects of affiliation. Regression results indicate that affiliation with a geographically diversified bank holding company generally provides no significant long-term competitive advantage (in terms of market share accumulation) for holding company subsidiaries over independent banks. The only exception is a modest benefit afforded to banks with relatively small pre-acquisition market shares that are acquired by larger bank holding companies as initial entry vehicles into new markets.
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Rose, J.T., Wolken, J.D. Geographic diversification in banking, market share changes, and the viability of small independent banks. Journal of Financial Services Research 4, 5–20 (1990). https://doi.org/10.1007/BF00365550
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DOI: https://doi.org/10.1007/BF00365550