Historical Environments, Coordination and Consolidation in the U.S. Banking Industry, 1896-2001

Large-scale organizations are a ubiquitous element of modern society, yet few theories have been advanced to explain why they have come to dominate a wide variety of industries. I develop a theory that suggests that organizational growth and scale are contingent on intra-organizational coordination fostered by features of the twentieth-century business environment. I specifically examine how changes in laws and developments in technology influenced coordination capabilities, organizational growth, and acquisitions in the US banking industry. I analyze bank growth in the twentieth century at two levels during two key historical eras. At the state level between 1896 and 1978 I show that in states in which branching was legally permitted and the technical environment was more advanced banks were larger and more geographically dispersed than were banks in states that did not exhibit these characteristics. I further show that banks founded under these conditions were more likely to pursue acquisitions following the deregulation of the banking industry in 1978. These findings suggest that banks founded in environments where coordination over distance was possible developed a capability that proved to be an enduring advantage and that the current structure of the banking industry reflects the variation in the historical environments in which banks were founded