The benefits and costs of geographic diversification in banking

Céline Meslier, Donald P. Morgan, Katherine Samolyk and Amine Tarazi

Journal of International Money and Finance, 2016, vol. 69, issue C, 287-317

Abstract: We estimate the benefits of geographic diversification within states and across states for bank risk and return for all U.S. bank holding companies from 1994 to 2008, and assess whether such benefits depend on bank size. For small banks, only intrastate diversification increases risk-adjusted returns and reduces default risk while for very large institutions only interstate expansions are beneficial but only in terms of default risk. In all cases the relationship is hump-shaped indicating that at some point, the possible agency costs associated with banks getting wider and more geographically diversified outweigh the benefits. Our results indicate that small banks and very large banks could still benefit from further geographic diversification.

Keywords: Bank geographic diversification; Risk; Return; Agency costs (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0261560616300869
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The Benefits and Costs of Geographic Diversification in Banking (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:69:y:2016:i:c:p:287-317

DOI: 10.1016/j.jimonfin.2016.07.007

Access Statistics for this article

Journal of International Money and Finance is currently edited by J. R. Lothian

More articles in Journal of International Money and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().