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Abstract
This research examined the relationship between cost strategies, regulatory environment, and firm performance, focusing on community banks in Nebraska. This study sought to test theories espoused in the empirical literatures of strategic management and economics which stress the impact of overhead expenses on firm performance, particularly in competitive business environments.
This research focused on the effect of deregulation of the banking industry, and control of overhead costs as a strategy for dealing with the increased competition precipitated by deregulation. Community bank performance was measured by return on average assets. Cost strategies were operationalized by using measures of overhead costs, specifically, salary expense, occupancy expense, and an 'other expenses' category that is common to the banking industry. Environment was operationalized as a time function representing the regulation years (1977-1979), and deregulation years (1983-1985).
Data was analyzed using multivariate analysis of variance, multiple regression/correlation analysis, and cross-lagged panel correlations. Also, qualitative interviews were conducted with a number of bank practitioners to clarify certain points raised by the quantitative analyses.
The results of this project dispute the aspects of the strategic management and economics literatures which hold that cost control strategies are a more effective business strategy in highly competitive industry environments than in a noncompetitive setting. However, the results confirm the strategic management literature as to the importance and impact of cost control strategies on firm performance, regardless of competitive circumstances.
These findings indicate that more research is needed in small business and service industries to determine how the 'rules of the game', as developed in industrial settings and set out in the empirical strategic management literature, apply to small business in the service industries.
