Essays on competitive strategy in regulated industries
Subtitle: evidence from commercial banking
By: a dissertation presented by Kristin Elizabeth Wilson to the Strategy Unit in partial fulfillment of the requirements for the degree of Doctor in Business Administration in the subject of strategic management
Contributors: Harvard Business School
Publisher: ProQuest, UMI Dissertation Publishing
Published: 2012
Place of publication: Ann Arbor, MI
Language: eng
Number of pages: 153
Copyright date: 2012
Subjects: Financial crises; Banks and banking
Description: This dissertation studies heterogeneity in firm performance that arises from market failures and the regulation of market failures in the commercial banking industry. The first essay explores the heterogeneity in firm performance that can arise from exogenously varying levels of oversight in regulated industries. We show that banks located closer to their examination field offices face lower supervision costs that are not explained by leverage. This suggests that regulatory oversight is not purely a burden, but that closer ties with supervisors bring advantages to firms. We hypothesize that these advantages accrue due to co-located banks' lower costs of information exchange. In support of this conjecture, we find that large banks do not benefit disproportionately from proximity to their supervisor, as a collusion-driven explanation would suggest.

The second essay explores whether incumbent firms enjoy a strategic advantage in reducing uncertainty about future demand in highly cyclical industries. I consider this question by studying sources of heterogeneity in financial institutions' ability to manage risk exposures for a highly cyclical, competitive line of business: construction loans. Firms with early investment experience in the construction business demonstrate superior screening capabilities relative to competitors during the building boom. Despite this advantage in identifying idiosyncratic risks across borrowers, experienced banks do not outperform their competitors in limiting their exposure to market risk.

The third essay considers whether the the organization of regulatory enforcement agencies impacts whether regulators' intervene pro-actively in markets, and how regulators respond after a market crisis. I focus on the dramatic growth and equally dramatic collapse of construction lending in the US commercial banking industry as a case study for a highly regulated boom and bust market. I identify differences in policy implementation across firms panel data on banks' supervising agency's structure, resources, and funding incentives, as well as bank examiner turnover and compensation. Among agencies, I do not find differences in the regulation of underwriting quality or in pre-crisis construction market exposures. However, regulatory regime has a significant impact on the rate at which lending contracts after the housing market collapse. Overall, this study shows that differences in the regulatory oversight environment are not necessarily readily apparent in "boom" markets but likely to have a significant impact on performance in times of crisis.
Notes: UMI Number: 3516341.

D.B.A. Harvard Business School 2012 Kristin Elizabeth Wilson's thesis.

Includes bibliographical references (pages 147-153).