The Effects of Geographic Expansion on Bank Efficiency
We assess the effects of geographic expansion on bank efficiency using cost and profit efficiency for over
7,000 U.S. banks, 1993-1998. We find that parent organizations exercise some control over the efficiency of
their affiliates, although this control tends to dissipate with distance to the affiliate. However, on average,
distance-related efficiency effects tend to be modest, suggesting that some efficient organizations can overcome
any effects of distance. The results imply there may be no particular optimal geographic scope for banking
organizations . some may operate efficiently within a single region, while others may operate efficiently on a
nationwide or international basis.
