Is being big...better? : a study of Norwegian saving banks

Abstract

This study examines the relationship between size and financial efficiency, existence of economies of scale in the context of Norwegian saving banking sector in the span of nine years from 2002 to 2010. The study has used longitudinal data which is secondary data in its nature and is obtained from the Norwegian saving banks association. Multiple regressions have been applied in order to find the nature and significance of relationship, and polynomial regression is used to demonstrate the curvilinear relationship. Total assets and deposits are used as a dimension of size; operating expense ratio is used as efficiency measurement. Our results reveal that there is a complex association between size and efficiency. We observed that operating costs decrease as the size increases, but this phenomenon does not hold continuously and larger banks experience diseconomies of scale. Our findings suggest that with the increase in size the banks enjoy economies of scale, but the larger banks start experiencing diseconomies of scale, and then very large banks start experiencing economies of scale again.