The effects of geographic expansion on bank efficiency

We assess the effects of geographic expansion on bank efficiency, using cos t and profit efficiencies estimated for over 7000 U.S. banks from 1993 to 1 998. We find both positive and negative links between geographic scope and bank efficiency. Parent organizations exercise some control over the effici ency of their affiliates, although this control tends to dissipate with the distance to the affiliate. However, on average, distance-related efficienc y effects tend to be modest, and our results suggest that some efficient or ganizations can export efficient practices to their affiliates and overwhel m any effects of distance. The results imply there may be no particular opt imal geographic scope for banking organizations-some may operate efficientl y within a single region, while others may operate efficiently on a nationw ide or international basis.