The Perils of Speed: Branch Expansion and Bank Performance

Allen Berger, Haoyu Gao, Xinming Li, Yuchao Peng and Bingyuan Xie

MPRA Paper from University Library of Munich, Germany

Abstract: We explore the limits of organizational expansion in the financial sector, highlighting how branch network growth impacts bank performance. Employing data from small and medium banks in China, we reveal that branch expansion at breakneck speed results in poor performance. We identify agency problems arising from poor governance, hindered information collecting, and heightened moral hazard that can intensify the costs associated with rapid growth. Our findings emphasize the dangers of ambitious expansion, offering critical insights for policymakers and bankers in managing the intertwined challenges of agency costs and the pace of growth, suggesting more balanced future bank branching strategies.

Keywords: Banking; Branching; Agency Problems; Governance; Performance; Risk (search for similar items in EconPapers)
JEL-codes: G21 G30 L10 (search for similar items in EconPapers)
Date: 2025-07-02
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