Determinants of Bank Growth? It Essay

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These are the results of studies conducted by Mansfield in 1962, Utton in 1972, and Singh and Whittington in 1975. However, according to the study conducted by Hart and Prais in the year 1956, most companies demonstrated an 'inverse size-growth relationship' for certain times, and the theory of the Law of Proportionate Effect was thus rejected completely by them. Certain studies conducted by Hall in 1897, Dunne and Hughes in 1994, Hart and Oulton in 1996, and more recently, Blonigen and Tomlin in 2001 that were based on the manufacturing data of certain companies, showed that the size and the growth relationship of these companies, whether taken at the firm or at the plant level, was in fact negative. (Dynamics of growth and profitability in Banking)

In the Banking sector, the study conducted by Alhadeff and Alhadeff in 1964 show that between the years 1930 and 1960, it was discovered that smaller banks in the United States of America grew much faster than larger sized banks. The various studies conducted by Rhoades and Yeats in 1974, and by Yeats et al. In 1975 demonstrate the fact that the growth of banks in the U.S.A. was affected to a large extent by its size. Wilson and Williams in 2000, and Scholtens in 2000 found that there was no evidence or proof of mean-reversion in the size of the banks being analyzed over the specified period of time. Saunders and Walter in their study conducted in 1994 state that there did exist an inverse size-growth relationship in banks, at an International level, for the time period from 1982 to 1987. (Dynamics of growth and profitability in Banking)

Gibrat's Law also states that the role of one's reputation in being able to access credit and the impact of this fact on the growth of the company or firm offers the insight to the link between reputation and the innate performance of the firm over the years.

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Certain empirical studies done in developed economies show that the Gibrat's Law is very true and applicable to large firms, but the fact is that more recent studies have shown that the Gibrat theory is in fact only applicable to larger firms, that is, those firms that are larger than the minimal optimal scale, and that it does not consider the wider implications of age and also size distributions. (Reputation, credit and firm performance: analysis of Kenyan manufacturing firms)

To conclude, it can be stated that Gibrat's Law of Proportionate Effect is valid in the case of where the theory is shaped by the context, like for example, when the context is that of country-specific institutions and a specific time period of analysis. This is the reason why the relationship between the size of the firm and the growth that it demonstrates may be different for each company that is analyzed, and more research needs to be conducted into this relationship and how it can be changed over the years, especially in the banking sector. (R&D Intensity and Firm Growth and Institutions in Germany).....

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