The Impact of Local Knowledge on Banking

Abstract

We use firm-level data to study how local knowledge impacts the wage and profitability of commercial banks. Using a novel regulatory and competitive environment as a natural experiment, we find that restrictions on the mobility of local knowledge negatively impact the incidence of new bank charters. Also consistent with expected theory, we also find no impact on banks formed through mergers or acquisition where the acquiring bank can simply purchase the local knowledge available. We also find that restrictions on the mobility of local knowledge decrease labor expenses. This supports the hypothesis that such mobility restrictions enable employers to extract rents from workers who lack bargaining power arising from a potential job change to a local rival. We also find that increases in labor restrictions are positively correlated with profitability, benefiting established banks because it restricts competitive with potential new banks that could potentially exploit local knowledge more effectively.

Corporate Governance and Financial Peer Effects

“…Greater noncompetition enforcement increases executive stability, but also reduces incentives for managers to maximize human capital (Garmaise, ). We measure the enforceability of noncompete agreements based on an index developed in Garmaise () and extended to earlier time periods by Bird and Knopf (). This index is based on the answers to 12 questions regarding the enforceability of noncompete agreements for a particular state.…”

The consequences of the inappropriate use of ventilation systems operating in indoor swimming pool conditions - analysis

“…A visual inspection of available internal and external structural elements of both ventilation units showed significant corrosion damage, which negatively affects both the quality of air entering the pool hall and the life cycle of the installation itself [7]. Heavy surface damage and material losses were observed at the bottom of the cover panels made of aluzinc-coated metal sheet.…”

Trade Secrets Protection and Antitakeover Provisions

“…First, we use the number of firms in the same industry and state, because employees should have greater mobility when there are a larger number of peer firms in the local labor market (Chen et al, 2018). Second, we use ex-ante restrictions on labor mobility using state-level variation in enforcement of CNCs (Bird and Knopf, 2015). 14 CNCs are contracts used in various industries to prevent a departing employee from joining or creating a rival enterprise within a specific time period and geographic area.…”

“…7 Examining a time trend of the changes in the years before and after IDD recognition indicates that significant changes in the Takeover Defenses take place in years just after IDD adoption. Cross-sectional tests reveal that the treatment effect on Takeover Defenses is stronger for firms with greater ex-ante employee mobility, proxied by the number of firms in the same industry and headquarter state prior to IDD adoption (Chen et al, 2018) and for firms in states with lower enforcement of covenants not to compete (Bird and Knopf, 2015).…”

“…Nevertheless, we mitigate this concern by including standard controls used in models on ATPs and takeover activity, firm fixed effects to control for time-invariant firm-level factors, and year fixed effects to control for any time trends. 10 We also include controls for the economic and political conditions prevailing in a state as in Klasa et al (2018), state-level enforcement of covenants not to compete (Bird and Knopf, 2015), and CEO ownership based on the recommendation in Catan and Kahan (2016). Subject to the above caveat, our study offers the following contributions.…”