To Build or Buy: an Empirical Study of the Characteristics Affecting a Bank’s Expansion Decisions

This paper examines a bank’s expansion decision. A probit model is used for the analysis of whether the bank expands, the unconditional expansion decision. To correct for selection bias, a Heckman correction procedure is used to predict build and merge activity rates of expanding banks. Market, bank and bank/market characteristics are used to estimate a California bank’s unconditional and conditional expansion decision. The analysis identifies differences in predicting build and merge activity rates for the entire sample of banks, as well as stratification on small and large banks. The results indicate different factors affect the build and merge activity rates.