Bank size, returns to scale, and cost efficiency
Ayse Sapci and
Journal of Economics and Business, 2019, vol. 105, issue C
Since the Great Recession, government regulators have become more interested than ever in the significant increase of bank size in the US financial sector. We contribute to the literature by studying the dynamic and bidirectional interactions between size, cost efficiency, and returns to scale using a newly constructed bank-level dataset. We first estimate scale economies for 198 US commercial bank holding companies using Fourier flexible form. We find that all banks except the too-big-to-fail banks exhibit increasing returns to scale. Proving the bidirectional relationship, we find that bank size Granger-causes both returns to scale and cost efficiency. On the other hand, cost efficiency also Granger-causes bank size. Taking this endogeneity into account, PVAR and Bayesian PVAR analyses demonstrate that banks enjoy cost efficiency as they grow, but lose scale economies gains even after controlling for bank-level characteristics, macroeconomic factors, and the regulatory environment. Our findings further suggest that regulations help decrease the costs of most banks, potentially encouraging them to grow further.
Keywords: C11; C14; G21; G28; L11; Returns to scale; Cost efficiency; Bank size; Bank regulations (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:105:y:2019:i:c:s0148619518301152
Access Statistics for this article
Journal of Economics and Business is currently edited by Kenneth J. Kopecky
More articles in Journal of Economics and Business from Elsevier
Bibliographic data for series maintained by Haili He ().