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Product and geographic market diversification in U.S. banking

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  • Zhang, Jingfang
  • Hartarska, Valentina
  • Malikov, Emir

Abstract

Prior literature either estimates economies of product diversification or evaluates the effects of market expansion on bank performance, but few studies look at the intersection of product and geographic diversification. We examine if the market expansion opportunities resulting from deregulation helped improve diversification/scope economies exhibited by banks. We leverage spatiotemporal variation in the implementation of deregulation laws across states to identify this relationship using a difference-in-differences framework. We find that the inter/intrastate deregulation accounts for a modest but statistically significant decrease in diversification diseconomies, and these gains were long-lasting. The findings suggest that geographic and product diversification are complementary.

Suggested Citation

  • Zhang, Jingfang & Hartarska, Valentina & Malikov, Emir, 2021. "Product and geographic market diversification in U.S. banking," Finance Research Letters, Elsevier, vol. 42(C).
    • Handle: RePEc:eee:finlet:v:42:y:2021:i:c:s1544612320316950
    DOI: 10.1016/j.frl.2020.101881
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    References listed on IDEAS

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    More about this item

    Keywords

    Banks; Deregulation; Market diversification; Product diversification; Scope economies;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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