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Finance and Economics Discussion Series
The Finance and Economics Discussion Series logo links to FEDS home page The Effects of Geographic Expansion on Bank Efficiency
Allen N. Berger and Robert DeYoung

Abstract: We assess the effects of geographic expansion on bank efficiency using cost and profit efficiency for over 7,000 U.S. banks, 1993-1998. We find that parent organizations exercise some control over the efficiency of their affiliates, although this control tends to dissipate with distance to the affiliate. However, on average, distance-related efficiency effects tend to be modest, suggesting that some efficient organizations can overcome any effects of distance. The results imply there may be no particular optimal geographic scope for banking organizations some may operate efficiently within a single region, while others may operate efficiently on a nationwide or international basis.

Keywords: Banks, efficiency, mergers, financial institutions

Full paper (254 KB PDF)

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Last update: January 12, 2001