Review of Finance Advance Access originally published online on December 18, 2008
Review of Finance 2009 13(2):225-259; doi:10.1093/rof/rfn029
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The Impact of Organizational Structure and Lending Technology on Banking Competition*
1 CentER – Tilburg University, TILEC and CESifo
2 International Monetary Fund, CEPR and ECGI
3 CentER – Tilburg University and CEPR
We investigate how bank organization shapes banking competition. We show that a bank's geographical lending reach and loan pricing strategy is determined by its own and its rivals’ organizational structure. We estimate the impact of organization on the geographical reach and loan pricing of a large bank. We find that the reach of the bank is smaller when rival banks are large and hierarchically organized, have superior communication technology, have a narrower span of organization, and are closer to a decision unit with lending authority. Rival banks’ size and the number of layers to a decision unit soften spatial pricing.
JEL Classification: G21, L11, L14
* We are grateful to Marco Pagano (the Editor), an anonymous referee, Klaus Adam, Lamont Black, Eric de Bodt, Elena Carletti, Giovanni Dell’Ariccia, Gianni De Nicolò, Valeriya Dinger, Don Fraser, Robert Hauswald, Jan Krahnen, Jose Liberti, Fabio Panetta, Efrat Tolkowsky, as well as participants in the European Finance Association Meetings (Zurich), the Changing Geography of Banking Conference (Ancona), the CEPR European Summer Symposium on Financial Markets (Gerzensee), the Konstanz Seminar on Monetary Theory and Policy (Island of Reichenau), and the World Bank Conference on Small Business Finance (Washington DC), and seminar participants at CORE, the Central Banks of Finland, Norway, and Sweden, the joint ECB-CFS-Bundesbank Lunch Seminar, the University of Ghent, and Maastricht University for many valuable comments. Degryse gratefully acknowledges financial support from FWO-Flanders, NWO-The Netherlands, and the Research Council of the University of Leuven. Degryse holds the TILEC-AFM Chair on Financial Regulation. We would like to thank Thomas Provoost for data assistance. The paper was partly written while Laeven was at the World Bank. This paper's findings, interpretations, and conclusions are entirely those of the authors and do not necessarily represent the views of the International Monetary Fund, its Executive Directors, or the countries they represent.