محدوده شرکت: شواهد از صنعت بانکداری
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|18245||2003||33 صفحه PDF||سفارش دهید||15435 کلمه|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Journal of Financial Economics, Volume 70, Issue 3, December 2003, Pages 351–383
Agency theory implies that asset ownership and decision authority are complements. Using 1998 data from Texas commercial banks, we test whether the likelihood of local ownership of bank offices increases with the importance of granting local managers greater decision authority (for example, due to location or customer base). Our empirical evidence is consistent with this hypothesis. It suggests that complementarities between strategy and organizational structure can foster differentiation among firms in terms of location, customers, and products. It also supports the growing view that small locally-owned banks have a comparative advantage over large banks within specific environments.
Incentive theory implies that asset ownership and decision authority are complements. Asset ownership reduces agency problems and thus the costs of granting the owner more decision authority. Substantial decision authority, in turn, increases the benefits of giving the agent an ownership interest in the assets. This theory suggests at least two testable implications. First, asset ownership and decision authority will be positively correlated.1 Second, the agent will have greater ownership rights and decision authority in environments in which it is important to grant the agent significant decision-making authority (for instance, due to the agent's specific knowledge). In this paper, we use 1998 data from the Texas banking industry to provide evidence on these propositions. Following the convention of regulators and past researchers, we classify banks as either large or small depending on whether they have more than one billion in assets (similar results hold if we use a $500 million cutoff). Nakamura (1994), for example, indicates that the managers of the individual branch offices within large banks generally are granted limited decision rights, are required to follow standardized operating procedures, and are monitored by supervising managers from the large bank's headquarters or a nearby banking center. Specialists from these major offices handle many of the more complex products and services. In contrast, local office managers of small banks tend to have broader decision-making authority. We begin by documenting that the ownership of small bank offices is highly concentrated among local office managers and investors from the local community. In contrast, branch managers in large banks have virtually no ownership interests in either the bank or its branches. These findings, coupled with what we know about the decision authority of the managers in large and small bank offices, are consistent with the incentive-theory implication that asset ownership and decision authority will be positively correlated. Our main empirical tests focus on the joint hypothesis that (1) bank offices will be owned by small banks in environments where it is important to grant significant decision-making authority to local office managers; and, (2) It it is more important to grant significant decision-making authority to local office managers in smaller urban and rural areas than in major cities. We expect that it will be relatively more important to grant decision authority to local managers in smaller urban and rural areas for two reasons. First, in major cities it is less expensive to refer inquiries about more complex products and services to specialists at a nearby regional banking center. In more rural markets it is more likely to be efficient to have local bank managers handle a broader set of products and services; thus, specialization is limited by the size of the market. Second, the major loan customers in small urban and rural areas are often small businesses without audited financial statements. The local manager's information about the customer, the community, and purpose of the loan is likely to be more important in deciding whether to fund such small business loans. At the same time, this relatively opaque information is more expensive to transfer to a remote decision maker than the more transparent information associated with large public companies that have audited accounting statements. These factors suggest that it will be efficient to grant increased lending authority to the local manager in more rural markets. Conceptually, a large bank also might grant local managers significant decision-making authority if they own offices in smaller urban and rural areas. However, given the multi-dimensional output of these offices, it would be difficult to develop effective incentive–compensation plans and the costs of monitoring these managers from a greater distance would be higher.2 Even if it were feasible to write an effective, customized compensation contract for managers of such offices, it might not be optimal for a large bank to do so given the influence costs that variation in the method of compensating managers within the same organization potentially engenders (see Milgrom (1988) for a discussion of influence costs). In addition, the lower demand for extensive branch systems in less populated areas reduces investment costs and thus, the advantages of financing the offices through publicly traded stock. Consistent with our joint hypothesis, we find that the likelihood that a large bank owns an office decreases significantly as the location shifts from a major city to a rural area. The majority of offices in the major Texas cities (Austin, Dallas, El Paso, Fort Worth, Houston, and San Antonio) are part of branch systems owned by large banks with widely held, publicly traded stock; these banks typically are headquartered out-of-state. Small banks, on the other hand, are more prevalent in smaller cities and dominate in rural areas. Moreover, small banks have few branches and normally concentrate in one local market area. Local managers and investors from the local community own almost all the stock in such banks. Although our analysis focuses on the boundaries of the firm, we also offer insights into two additional questions of more general interest. First, economists since Hotelling (1929) have been interested in how firms make choices in terms of geography, products, strategies, and so forth. Of particular interest is whether firms strive for maximum or minimum differentiation. Past empirical work has focused on how factors such as demand conditions, entry costs, competition, and transportation costs affect the degree of differentiation across firms.3 Our study suggests that organizational considerations are important as well; crafting an organizational strategy and structure to serve one type of customer or location can limit a firm's effectiveness in serving other customers and locations, thus promoting differentiation across firms. Second, some commentators argue that economies of scale imply that large, vertically integrated banks ultimately will displace small community banks now that branching restrictions have been reduced (for instance, by the Riegle–Neal Act of 1994).4 Coupled with the extant evidence that small banks engage in relatively more small business lending than large banks, this possibility has raised the specific concern that there will be a reduction in the supply of credit to small businesses. Yet as Coase (1937) first argued, production technology should not drive organizational form. Absent contracting costs, any scale economies that a large vertically integrated bank might achieve also could be achieved by a group of small independently owned banks linked by contracts. Our evidence supports the growing view—presented, for example, by Calem (1994) and Nakamura (1994)—that small banks have a comparative advantage over large banks within certain environments. Moreover, we identify a potential explanation for this advantage. Our findings are consistent with the hypothesis that small banks’ ownership structures provide them with an advantage in small business lending. Thus, in contrast to the predictions of some observers, we argue that the recent liberalization of interstate branching regulation is unlikely to result in the elimination of small banks within the foreseeable future. States’ banking laws and regulations historically have had an important effect on organizational patterns in banking. To help control for regulation, we focus on a large sample of banks from a single state, Texas, rather than a similarly sized sample of banks drawn from a set of states with differing historical regulations. Texas has the largest number of banks and banking offices in the United States; it also covers a large geographic area and has a population that exhibits material variation in demographic characteristics across the state. These factors increase the power of our tests. Finally, Texas has permitted both large branch systems and small independent banks since it authorized countywide branching in 1987 and statewide branching in 1988. To help ensure that our results are not driven by historic branching restrictions in Texas, we replicate the analysis using data from California—a state that has never prohibited statewide branching. Although restricting our analysis to the banking industry imposes limitations (for instance, additional work is required to determine how well our results generalize to other, less-regulated industries), banks provide an interesting source for evidence on the boundaries of the firm for at least four reasons. First, physical assets in banking are not particularly firm specific; moreover, the level of physical asset specificity is unlikely to vary materially across banking offices. Thus, banks are especially well suited for providing evidence on how factors other than asset specificity, such as ownership incentives and risk-bearing considerations, affect integration decisions.5 Second, commercial banks vary substantially in their degree of horizontal and vertical integration; thus, our tests of explanations of this organizational variation should have power. Third, regulations mandate that banks must disclose financial and organizational information (such as disaggregated operating information and office location) that is rarely disclosed by firms in other industries. Fourth, having a large sample of firms from the same industry controls for a variety of potentially important omitted variables that might confound the interpretation of inter-industry studies. The paper is organized as follows. In Section 2, we discuss organizational arrangements within the banking industry. We develop our empirical predictions in Section 3 and provide an overview of the Texas banking market in Section 4. In Section 5, we present our empirical results, and we conclude in Section 6 with a brief discussion of our results and their implications.
نتیجه گیری انگلیسی
There are over 3,000 commercial bank offices in Texas. Large banks with dispersed ownership own 49% of these offices, while small banks with relatively concentrated ownership own the remaining 51%. Most of the offices are affiliated with other offices as part of a branch system, though 8% are organized as stand-alone unit banks. In this paper, we use incentive-related arguments to analyze ownership patterns within this industry. Our results are consistent with the hypotheses that bank offices are more likely to be owned locally (vertically separate) when it is more important to grant significant decision rights to the local office managers (for example, due to the location of the office, the customer base, and the distribution of knowledge). In contrast to much of the prior empirical work on the boundaries of the firm, our focus is on ownership incentives, rather than firm-specific physical assets. Although our study examines the boundaries of the firm, we also provide insights into two other questions of broad interest. First, while theorists since Hotelling (1929) have questioned how firms make locational choices, limited empirical evidence exists on this issue. Of particular interest is whether firms strive for maximum or minimum differentiation. Our evidence suggests that certain types of banks strive to differentiate themselves from other banks both through locational choice and customer focus. Large banks tend to concentrate primarily on urban areas, while smaller locally owned banks focus more on smaller urban and rural areas. Individual banks tend to concentrate geographically. Designing an organization to serve one type of customer or location limits the ability of that organization to serve other types of customers and locations. This promotes differentiation across organizations. Second, the Riegle–Neal Act of 1994 materially reduces constraints on interstate bank branching. Opponents of this legislation have argued that large interstate banks would eliminate small community banks. Our evidence supports the growing view that small banks have a comparative advantage over large banks within identifiable environments. Our evidence suggests that one advantage of small banks is the incentives provided to local managers through concentrated share ownership. Petersen and Rajan (2002) argue that improvements in computer and information technology have reduced the importance of local information in evaluating loans to small businesses and thus have reduced the advantage that small banks traditionally have had in small business lending. Their empirical evidence supports the hypothesis that geographic distance between banks and their loan customers has become less important over time. An interesting question is whether or not the patterns we have found in our data will continue to hold as computer and information technology continues to improve. Our conjecture is that, while large banks are likely to continue to increase the amount of business they do with distant customers, small banks will continue to own many of the bank offices in less urban areas. We base this forecast on three arguments: First, local ownership provides important incentives to provide quality service to customers. An alternative is to have an employee manage the office and be monitored by central bank personnel. This alternative, however, is likely to be more expensive in rural locations (Brickley and Dark (1987) use related arguments to explain why isolated units in franchised systems tend to be franchised rather than company-owned). Second, while improvements in technology reduce the costs of processing and transferring information, they are unlikely to eliminate the importance of local manager information for all banking transactions (see Berger et al. (2001) for a related discussion). Third, some customers appear to prefer to deal with a community bank rather than a branch of a large bank with a distant headquarters. Indeed, this point is often the focus of marketing by small banks. Such product differentiation has the potential to help offset any cost disadvantages from operating at a smaller scale. These arguments imply that small banks will continue to play an important role in the economy in the foreseeable future.15