The Perils of Speed: Branch Expansion and Bank Performance

Berger, Allen and Gao, Haoyu and Li, Xinming and Peng, Yuchao and Xie, Bingyuan (2025): The Perils of Speed: Branch Expansion and Bank Performance.

Abstract

We explore the limits of organizational expansion in the financial sector, highlighting how branch network growth impacts bank performance. Employing data from small and medium banks in China, we reveal that branch expansion at breakneck speed results in poor performance. We identify agency problems arising from poor governance, hindered information collecting, and heightened moral hazard that can intensify the costs associated with rapid growth. Our findings emphasize the dangers of ambitious expansion, offering critical insights for policymakers and bankers in managing the intertwined challenges of agency costs and the pace of growth, suggesting more balanced future bank branching strategies.

• Item Type: MPRA Paper
• Language: English
• Keywords: Banking, Branching, Agency Problems, Governance, Performance, Risk
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L10 - General

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