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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26469
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| Title: | Strategies in Financial Services, the Shareholders and the System Is
Bigger and Broader Better? |
| Authors: | Walter, Ingo |
| Issue Date: | 2002 |
| Series/Report no.: | FIN-02-025 |
| Abstract: | The classic structure-conduct-performance approach to industrial
organization centers on three questions. First, why is does an industry
look the way it does, in terms of numbers of competitors, market share
distribution and various other metrics? Second, how do firms actually
compete, in terms the formation of prices, product and service quality,
rivalry and collaboration within and across strategic groups, and other
attributes of economic behavior? And third, how does the industry
perform for its shareholders, its employees, its clients and suppliers,
and within the context the system as a whole in terms of its impact on
income and growth, stability, and possibly less clearly defined ideas
about such things as social equity? In the financial services industry,
these same questions have attracted more than the normal degree of
attention. The industry is "special" in a variety of ways,
including the fiduciary nature of the business, its role at the center
of the payments and capital allocation process with all its static and
dynamic implications for economic performance, and the systemic nature
of problems that can arise in the industry. So the structure, conduct
and performance of the industry has unusually important public interest
dimensions. One facet of the discussion has focused on size of financial
firms, however measured, and the range of activities conducted by them.
Exhibit 1 depicts a taxonomy of broad-gauge financial services
businesses. What are the strategic opportunities and competitive
consequences of deepening and broadening a firm’s business within
and between the four sectors and eight sub-sectors? Is size positively
related to total returns. to shareholders? If so, does this involve
gains in efficiency or transfers of wealth to shareholders from other
constituencies, or maybe both? Does greater breadth generate sufficient
information-cost and transaction-cost economies to be beneficial to
shareholders and customers, or can it work against their interests in
ways that may ultimately impede shareholder value as well? And what
about the gspecialness, h notably the industry\'s fiduciary character
and systemic risk -- is bigger and broader also safer? This paper begins
with a simple strategic framework for thinking about these issues from
the perspective of the management of financial firms. What should they
be trying to do, and how does this relate to the issues of size and
breadth? It then reviews the available evidence and reaches a set of
tentative conclusions from what we know so far, both from a shareholder
perspective and that of the financial system as a whole. |
| URI: | http://hdl.handle.net/2451/26469 |
| Appears in Collections: | Finance Working Papers
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