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The effects of big-bank presence on the profit efficiency of small banks in rural markets

Ken B. Cyree and W. Paul Spurlin

Journal of Banking & Finance, 2012, vol. 36, issue 9, 2593-2603

Abstract: Because big banks could impact competition in rural markets, we investigate the effects of big-bank presence on the performance of rural, small banks. When competing against a big bank, rural one-county banks operate at lower levels of proit efficiency, but with higher ROA and increased levels of interest and fee income from loans. Lower profit efficiency and higher returns in the rural markets suggest that big banks possess market power in rural markets and that they can extract rents to earn higher returns with lower than average profit efficiency. Therefore, small banks in rural markets should not fear large competitors. Conversely, customers who rely on loans from rural, small banks are negatively impacted by higher rates and fees on loans when a big bank is present in the market.

Keywords: Profit efficiency; Market power; Rural banking; Bank competition (search for similar items in EconPapers)
JEL-codes: G21 (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:36:y:2012:i:9:p:2593-2603

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