Cross-regional Entry And Expansion Of Commercial Bank

In the long term,the protection of the market access policies in the banking industry in China has formed a monopoly structure dominated by state-owned banks,while the business activities of other commercial banks are limited to the scattered regional markets.To promote the market competition of the banking industry,the government introduced reform measures whose content enabled deregulation of market access for commercial banks in other regions.Under the background of deregulation,commercial banks especially small and medium-sized commercial banks gradually start to consider cross-regional operation strategies.Many qualified commercial banks have implemented cross-regional expansion by setting up branches in different regions,and related issues have received extensive attention.Many studies show that with deregulation of policies for banks’ market access to other regions,the scale of cross-regional branches established by small and mediumsized commercial banks has increased significantly.In addition to asset size,profitability and other individual characteristic factors,the number of existing banks in the region they enter,the market competition levels and the degree of marketization in the region where the headquarters is located also have a significant impact on the crossregional establishment of branches by small and medium-sized commercial banks.Besides,many empirical pieces of research have held that cross-regional operation weakens the performance of small and medium-sized commercial banks,and some researchers have argued that cross-regional operation improves the operating performance of small and medium-sized commercial banks.Although related studies are emerging,there are certain deficiencies in the research perspective and content.First,services are characterized by intangibility,simultaneity of production and consumption,and difficulty in storage.This means that the study of market entry in the banking industry cannot copy the traditional analysis model that takes manufacturing enterprises as the research object,but needs to consider the inherent characteristics of the industry itself.Second,the market competition in the banking industry in China has the significant characteristic of geographical segmentation,and large state-owned banks have formed a market position with obvious advantages in most regions.Existing researches do not comprehensively examine the regional market factors that may affect the cross-regional expansion of commercial banks.Finally,the deregulation policy of market entry has encouraged commercial banks to set up remote branches.However,there is no consistent conclusion regarding research on the relationship between crossregional expansion and bank performance.Most existing research has ignored the possible curvilinear relationship between cross-regional expansion degree and bank performance.In fact,China’s commercial banks face many difficulties and restrictive factors in the establishment of branches in other regions.The existing power of the banks already established in those areas will not disappear spontaneously.The large state-owned banks in particular have a wide branch network in different regions,which offers a huge resistance to the cross-regional access and expansion of banks.On the other hand,deregulation will also raise the level of market competition.This means that banks operating locally are also under the competition pressure produced by access to banks from other regions.Whether the regional market factors in two kinds of regions have an impact on the cross-regional expansion of commercial banks?In the early stage of expansion,the commercial banks can hardly improve their operating performance owing to the difficulties in realizing scale economy,the lack of ability to spread and control risks,a series of explicit and implicit costs,and other short-term reasons.As the scale of branches is expanding and remote operation and management experience are accumulated gradually,the improving effect of cross-regional expansion on the performance of commercial banks may slowly emerge.Does the cross-regional operation strategy based on remote branch scale expansion have a "double-edged sword" effect for commercial banks? However,the issues related to the cross-regional entry and expansion of commercial banks have not been discussed thoroughly in light of research status.Based on the "structure-conduct-performance" analysis paradigm of industrial organization theory,entry barrier theory and multimarket contact theory and other related theories,this paper takes the deregulation policy of remote market entry in China as the unique background,and analyzes the evolution trend of China’s banking market structure.On this basis,this paper discusses the influence of the market structure in the region the banks enter and the region where the headquarters is located on the cross-regional entry and expansion of small and medium-sized commercial banks.Finally,this paper examines the overall and curvilinear relationship between the cross-regional expansion and the performance of small and medium-sized commercial banks.The main research contents and findings of this paper are embodied in the following three aspects.First,the research in Chapter 3 "Banking Development History and Market Structure Characteristics" shows that the market structure of China’s banking industry has experienced different stages of evolution since the reform and opening up,from a "uniform" banking system to the current situation where multiple financial institutions coexist.Based on the analysis of statistical data from 2009 to 2018,the market competition in China’s banking industry has been continuously enhanced,and the market share of small and medium-sized commercial banks has gradually increased,but large state-owned commercial banks still dominate the overall industry.On the other hand,there are significant regional differences in the structure of the banking market,and the level of banking competition in the eastern region is generally higher than that in the central and western regions.Second,in the research of Chapter 4 "Entry Resistance,Crowding-Out Effect and Cross-regional Expansion of Commercial Banks",this paper firstly conducts a statistical analysis on the number of branches of small and medium-sized commercial banks expanding across regions from 2010 to 2018.From the perspective of two expansion paths of intra-province and inter-province,the number of remote branches of small and medium-sized commercial banks is increasing year by year,and there are obvious differences between provinces.Taking entry resistance and crowding-out effect as the entry point,this paper constructs a two-stage model for entry selection and scale expansion based on "Bank-Region-Year" three-dimensional panel data,which come from banks’ financial license data provided by CBIRC from 2010 to 2018 and micro data of 179 small and medium-sized commercial banks.The results are as follows.The market power of state-owned banks in regional markets forms obvious resistance to the cross-regional entry and expansion of small and medium-sized commercial banks.The crowding-out effect generated by the agglomeration of banking industry in the regions of the banks’ headquarters increases the scale of cross-regional expansion of small and medium-sized commercial banks.There are significant differences in the impact of entry resistance and crowding-out effect on cross-regional entry and expansion across different types of banks,and the marketization disparities among regions play a positive moderating role on crowding-out effect.Third,in the research of Chapter 5 "Double-edged sword effect of Cross-regional Expansion on the Performance of Commercial Banks",this paper firstly constructs indicators to examine the expansion breadth,expansion depth and geographic diversification of banks entering different markets to set up branches,and analyzes the cross-regional expansion degree of small and medium-sized commercial banks from2009 to 2019.The results show that the average level of cross-regional expansion increases steadily over time,with significant regional differences,regardless of the breadth of expansion,depth of expansion,or degree of geographic diversification.Based on the panel data of 487 small and medium-sized commercial banks from 2009-2019,this paper constructs the breadth,depth and diversification indicators to examine the geographical expansion of bank branches to test the linear and non-linear effects of cross-regional expansion on bank performance.The results are as follows.Crossregional expansion negatively affects the overall performance.Nevertheless,there is a non-linear U-shaped relationship between cross-regional expansion and bank performance in terms of the curvilinear relationship.Extensive analysis shows that the multimarket contact of small and medium-sized commercial banks with competitors has a positive moderating effect on the relationship between cross-regional expansion and bank performance.The effect of cross-regional expansion on bank performance is limited to the expansion of remote branches within the province,especially for rural commercial banks.The results show that there is a "double-edged sword" effect of cross-regional expansion on bank performance.It remains uncertain if small banks can obtain benefits by setting up remote branches.As mentioned above,based on the financial license data provided by CBIRC and the micro data of commercial banks,this paper fully discusses the market structure factors that affect banks’ cross-regional expansion and the "double-edged sword" effect of cross-regional expansion on bank performance.The main research features and possible research contributions of this paper are summarized as follows.First,based on the theory of industrial organization that the market structure affects the market behaviors,and the geographical segmentation characteristics of China’s banking market competition,this paper examines the impact of market resistance in the region the banks enter and the crowding-out effect of the region where the banks’ headquarters is located on banks’ cross-regional expansion.This analysis perspective based on the influence factors of the market structure of the region the banks enter and the region where the headquarters is located is in line with the geographical dispersion characteristics of the banking industry.And this perspective is very rare in the existing literature,which provides a useful supplement to the study of service industry organization and entry barriers.Second,as there are obvious differences in the selection of the region the banks enter and their expansion behaviors after access in the implementation of the crossregional operation,this paper distinguishes the different stages of cross-regional access selection and scale expansion and uses Logit model and Tobit model to empirically test the influencing factors.There are few studies in the existing literature which analyze behaviors in the two stages at the same time.The discussion in this paper provides new empirical evidence for understanding the banks’ cross-regional expansion behavior and its influencing factors.Third,the cross-regional operation strategy based on remote branch scale expansion may have the effect of a "double-edged sword".This paper tests the overall linear effect of expansion degree on bank performance and discusses their possible curvilinear relationship.Most of the existing literature is limited to examining the linear relationship between cross-regional expansion and bank performance,and the curvilinear relationship between the two has not been sufficiently discussed.The above attempts expand and enrich the analysis framework of existing research.Fourth,in order to fully describe the current situation of banks entering various markets to establish branches across regions,this paper establishes comprehensive indicators to measure the cross-regional expansion degree of banks from three perspectives: expansion breadth,expansion depth and geographic diversification.At present,there are few studies that comprehensively analyze the extent of banks’ crossregional expansion from multiple dimensions.The variable selection in this paper provides a useful reference for related research.Fifth,this paper makes some useful attempts in the extended research.One is to consider that cross-regional expansion can allow banks to form multimarket contacts with competitors,which may have the effect of reducing the intensity of competition and thus affecting performance.Therefore,this paper examines the moderating effect of the degree of multimarket contact between commercial banks and competitors on the relationship between cross-regional expansion and performance.Second,due to the tremendous regional difference in China,this paper also divides the remote expansion mode of commercial banks into intra-province and inter-province types,in order to test the heterogeneity for the effect of cross-regional expansion path on bank performance.These attempts,which are rare in previous studies,help us further the understanding of the complex relationship between cross-regional expansion and bank performance.