Business expansion and firm efficiency in the commercial banking industry: Evidence from the U.S. and China.

　　Asia Pacific Journal of Management

　　Author: Feng Wang, Minxue Huang, Zhigang Shou

Abstract

　　Despite a consensus that business expansion drives firm effectiveness, extant literature has neglected the exact relationship between business expansion and firm efficiency. Using secondary data from the US and Chinese banking industries, this study explores two efficiencies of exploratory expansion (i.e., investing in new business, outside the scope of the firm’s existing business) and exploitative expansion (i.e., expanding target markets in the existing business)—profitability and marketability. The empirical results reveal that exploratory expansion decreases profitability but increases marketability. Meanwhile, exploitative expansion has no significant effect on profitability, but it can increase marketability. Furthermore, the study reveals that Chinese banks are likely to benefit more from exploratory expansion, whereas US banks would benefit from exploitative expansion.

Keywords：Exploratory expansionExploitative expansionProfitabilityMarketabilityUS and Chinese banking industry

URL：http://link.springer.com/article/10.1007/s10490-015-9408-1#authorsandaffiliations