International Journal of Financial Management

Open Access Open Access  Restricted Access Subscription Access
Open Access Open Access Open Access  Restricted Access Restricted Access Subscription Access

Empirical Evidences on Structure-Conduct-Performance Relationship In Banking Sector:A Literature Review


Affiliations
1 UNISA, Vice President, Debub Global Bank S.C, Ethiopia
2 School of Commerce, College of Business and Economics, Addis Ababa University, Ethiopia
     

   Subscribe/Renew Journal


A detailed review of existing literature on the structure-conduct-performance (SCP) relationship indicates that the empirical divergence between SCP and competing hypothesis is still not conclusive which is attracting many research works across the world, and recently in Africa. Studies on SCP are dominated by quantitative analysis with exclusion of non-quantifiable variables such as related to conduct and/or those lack data (regulation). The majority of studies employ a multiple linear regression model where a measure of bank performance (mostly profit) is regressed on market concentration variables (such as k-firm, Herfindahl-Hirschman Index, etc.) along with some control variables. Studies that used the structure model have limited focus on other key variables like regulation, macroeconomic, and industry factors. They have also applied a quantitative approach and assumed conduct as being a derivative of the market structure. Hence, there was no attempt to explore the behavior of banks within the given structure, banking, and macro environment. Few studies have explicitly considered Ethiopia’s banking performance using the structural approach (SCP or ESH). Nevertheless, the existing bank performance studies were not analyzed incorporating big banks in the industry, with long period observation of banks, using parametric and non-parametric methods, which are scarce in the Ethiopian context.

Keywords

Structure, Conduct, Performance, Bank, Ethiopia.
Subscription Login to verify subscription
User
Notifications
Font Size

  • Ab-Rahim R., & Chiang S. (2016). Market structure and performance of Malaysian banking industry. Journal of Financial Reporting and Accounting, 14(2), 158-177.

  • Alhassan, A., & Asare, K. (2016). Competition and bank efficiency in emerging markets: Empirical evidence from Ghana. African Journal of Economic and Management Studies, 7(2), 268-288.

  • Bain, J. (1951). The relation of profit rate to industry concentration, American manufacturing, 1936-1940. Quarterly Journal of Economics, 65(3), 293-324.

  • Bain, J. (1956). Barriers to New Competition. Harvard University Press, Cambridge, MA.

  • Bandt, O., & Davis, E. (2000). Competition, contestability and market structure in European banking sectors on the eve of EMU. Journal of Banking and Finance, 24, 1045-66.

  • Barth, J. R., Caprio, G., & Levine, R. (2001). The regulation and supervision of banks around the world: A new Database, In Litan, R., and Herring, R., eds, Brookings-Wharton Papers on Financial Services.

  • Bayeh, A., Burlacu, R., Bitar, M., & Walker, T. (2016). Competition, Securitization, and Efficiency In U.S. banks. Retreived from http://febs2016malaga.com/ wp-content/uploads/2016/06/2CompetitionSecuritiz ation.pdf accessed on January 2016.

  • Benti, Y. (2007). Determinants of Private Bank Profitably: Determinants of Private Banks’ Profitability in Ethiopia: Panel Data Evidence, Ethiopia.

  • Berger, A. (1995). The profit-structure relationship in banking, Tests of market-power and efficientstructure hypotheses. Journal of Money, Credit and Banking, 27(2), 404-431.

  • Berger, A., & Hannan, T. (1989). The price-concentration relationship in banking. Review of Economics and Statistics, 71, 291-299.

  • Berger, A., & Hannan, T. (1992). The price-concentration relationship in banking: A reply. Review of Economics and Statistics, 74, 376-379.

  • Berger, A., & Hannan, T. (1993). Using Efficiency Measures to Distinguish among Alternative Explanations of the Structure- performance Relationship in Banking, Federal Reserve Board Working Paper.

  • Berger, A., & Humphrey, D. (1997). Efficiency of financial institutions, international survey and directions for future research. European Journal of Operational Research, 98, 175-212.

  • Berstain, S., & Fuentes, R. (2005). Concentration and Price Rigidity: Evidence from the Deposit Market in Chile. Central Bank of Chile Working Papers, No. 311.

  • Bezabeh A., & Desta, A. (2014). Banking sector reform in Ethiopia. International Journal of Business and Commerce, 3(8), 25-38.

  • Bikker, J., & Haaf, K. (2002a). Measures of competition and concentration in the banking industry: A review of the literature. Economic and Financial Modelling, 1-46.

  • Bourke, P. (1989). Concentration and other determinants of bank profitability in Europe, North America and Australia. Journal of Banking and Finance, 13, 65-79.

  • Casu, B., & Molyneux, P. (2003). A comparative study of efficiency in European banking. Applied Economics, 35, 1865-76.

  • Casu, B., Cirardone, C., & Molyneus, P. (2004). Productivity change in European banking: A comparison of parametric and non-parametric approaches. Journal of Banking and Finance, 28(10), 2521-2540.

  • Celik, T., & Kaplan, M. (2016). Testing the StructureConduct-Performance Paradigm for the Turkish Banking Sector: 2008-2013. International Journal of Economics and Financial Issues, 6(4), 1625-1631.

  • Chen, H., Chuo, Y., Chang, J., & Yu, S. (2016). Does banking competition improve industry performance? Evidence from Taiwan, Journal of Informatics and Data Mining, 1(3:16).

  • Chirwa, E. (2001). Market Structure, Liberalization and Performance in the Malawian Banking Industry, AERC Research Paper 108, Nairobi, African Economic Research Consortium.

  • Chortareas, G., Garza-Garcia, J., & Girardone, C. (2009). Banking Sector Performance in Latin America: Market Power versus Efficiency, Centre for Global Finance, Working Paper Series No. 01/09.

  • Civelek, M. and Al-Alami, M. (1991). An Empirical investigation of the Concentration-Profitability Relationship in the Jordanian Banking System, Savings and Development, 15, 247-259.

  • Claeys, S., & Vennet, R. V. (2008). Determinants of Bank Interest Margins in Central and Eastern Europe: A Comparison with the West. Economic Systems, 32, 197–216.

  • Coelli, T., Rao, D., O’Donnell, C., & Battese, G. (2005). An introduction to efficiency and productivity analysis. Springer, New York.

  • Demsetz, H. (1973). Industry structure, market rivalry and public policy. Journal of Law and Economics, 16(1), 1-9.

  • Ebenezer, A., & Oladipo, E. (2016). Relevance of structure, conduct and performance paradigm in the Nigerian banking industry. Journal of Economics and Sustainable Development, 7(19), 2016.

  • Evanoff, D., & Fortier, D. (1988). Reevaluation of the structure-conduct: Performance paradigm in banking. Journal of Financial Services Research, 1(3), 277-294.

  • Fosu. S. (2013). Banking competition in Africa: Sub-regional comparative studies. Working paper: 12/13, University of Leicester, UK.

  • Gale, B., & Branch, B. (1982). Concentration Versus Market Share: Which Determines Performance and Why Does it Matter?, The Antitrust Bulletin, 27(Spring), 83-103.

  • Geda, A. (2006). The Structure and Performance of Ethiopia’s Financial Sector in the Pre- and PostReform Period with a Special Focus on Banking UNU-WIDER, Research Paper No. 2006/112, united nations university

  • Gilbert, R. (1984). Bank market structure and Competition: A survey. Journal of Money, Credit and Banking, 16, 617-45.

  • Goddard, J., Molyneux, P., & Wilson, J. (2001). European Banking: Efficiency, Technology and Growth. John Wiley and Sons, England.

  • Goldberg, L., & Rai, A. (1996). The structure-performance relationship in European banking. Journal of Banking and Finance, 20, 745-771.

  • Gonzalez, F. (2005). Determinants of Bank Market Structure: Efficiency and Political Economy Variables. Fundacion de las Cajas de Ahorros, Working Paper No. 219.

  • Gual, J. (1999). Deregulation, integration and market structure in European banking.

  • Hahn, F. (2005). Testing for Profitability and Contestability in Banking. Austrian Institute of Economic Research, WIFO Working Paper, No. 261.

  • Jenber (2001). Banking Sector: Recent Developments in Market Share, Balance Sheet, Capital Adequacy and profitability. BIrritu No. 75.

  • Lelissa, T. (2007). The Impact of Financial Liberalization on the Ownership, Market Structure and Performance of the Ethiopian Banking Industry (Masters Thesis, Addis Ababa University).

  • Lera, D., & Rao, P. (2016). Market structure, efficiency, and performance of the Ethiopian banking sector. India Journal of Research, 5(1).

  • Mason, E. (1939). Price and production policies of largescale enterprise. American Economic Review, 29(1), 61-74.

  • Maudos, J. (1998). Market structure and performance in Spanish banking using a direct measure of efficiency. Applied Financial Economics, 8(2), 191-201.

  • Molyneux P. (1993). Structure and performance in European banking. Doctoral Dissertation University of Wales, Bagnor.

  • Molyneux, P., & Forbes, W. (1995). Market structure and performance in European banking. Applied Economics, 27, 155-159.

  • Molyneux, P., & Thorton, J. (1992). Determinants of European bank profitability: A Note. Journal of Banking and Finance, 16, 1173-78.

  • Moore, R. (1998). Concentration, Technology, and Market Power in Banking, Is Distance Dead? Federal Reserve Bank of Dallas Financial Industry Studies, December, pp. 1-10.

  • Muir, D. (2012). A short primer on the Ethiopian banking system. Retrieved from http://noelmaurer.typepad.com/aab/2012/01/a-short-primer-on-the-ethiopianbankingsystem.html

  • Negussie, H. (2012). Determinants of banks profitability: An empirical study on Ethiopian private. Commercial Banks, Master’s Thesis unpublished, Addis Ababa University, 2012

  • Neven, D., & Röller, L. H. (1999). An aggregate structural model of competition in the European banking industry. International Journal of Industrial Organization, 17, 1059-1074.

  • Panzar, J., & Rosse, J. (1987). Testing for “Monopoly” Equilibrium. The Journal of Industrial Economics, 35, 443-456.

  • Park, K., & Weber, W. (2006). Profitability of Korean Banks: Tests of Market Structure versus Efficient Structure. Journal of Economics and Business, 58(3), 222-239.

  • Pawłowska, M. (2016). Determinants of profitability of polish banks: The role of foreign banks. Econometric Research in Finance, 1(1).

  • Peltzman, S. (1977). The gains and losses from industrial concentration. Journal of Law and Economics, 20(October), 229-263.

  • Pilloff, S., & Rhoades, S. (2002). Structure and profitability in banking markets. Review of Industrial Organization, 20(1), 81- 98.

  • Punt, L., & M. van Rooij (2001). The Profit-Structure Relationship and Mergers in the European Banking Industry. DNB Staff Reports, No. 58, De Nederlandsche Bank.

  • Sathye, M. (2005). Market structure and performance in Australian banking. Review of Accounting and Finance, 4(2), 107-122.

  • Shepherd, W. (1986). Tobins’q and the structure-performance relationship: Comment. The American Economic Review, 76(5), 1205-1210.

  • Short, B. (1979). The relation between commercial bank profit rates and banking concentration in Canada, Western Europe and Japan. Journal of Banking and Finance 3, 209-219.

  • Simatele (2015). Market structure and competition in the South African banking sector. Procedia Economics and Finance, 30(2015), 825-835.

  • Smirlock, M. (1985). Evidence on the (non) relationship between concentration and profitability in banking. Journal of Money, Credit and Banking, 17(1), 69-83.

  • Yu, P., & Neus, W. (2005). Market Structure, Scale Efficiency, and Risk as Determinants of German Banking Profitability. University of Tubingen, 294.


Abstract Views: 220

PDF Views: 0




  • Empirical Evidences on Structure-Conduct-Performance Relationship In Banking Sector:A Literature Review

Abstract Views: 220  |  PDF Views: 0

Authors

Tesfaye Boru Lelissa
UNISA, Vice President, Debub Global Bank S.C, Ethiopia
Abdurezak Mohammed Kuhil
School of Commerce, College of Business and Economics, Addis Ababa University, Ethiopia

Abstract


A detailed review of existing literature on the structure-conduct-performance (SCP) relationship indicates that the empirical divergence between SCP and competing hypothesis is still not conclusive which is attracting many research works across the world, and recently in Africa. Studies on SCP are dominated by quantitative analysis with exclusion of non-quantifiable variables such as related to conduct and/or those lack data (regulation). The majority of studies employ a multiple linear regression model where a measure of bank performance (mostly profit) is regressed on market concentration variables (such as k-firm, Herfindahl-Hirschman Index, etc.) along with some control variables. Studies that used the structure model have limited focus on other key variables like regulation, macroeconomic, and industry factors. They have also applied a quantitative approach and assumed conduct as being a derivative of the market structure. Hence, there was no attempt to explore the behavior of banks within the given structure, banking, and macro environment. Few studies have explicitly considered Ethiopia’s banking performance using the structural approach (SCP or ESH). Nevertheless, the existing bank performance studies were not analyzed incorporating big banks in the industry, with long period observation of banks, using parametric and non-parametric methods, which are scarce in the Ethiopian context.

Keywords


Structure, Conduct, Performance, Bank, Ethiopia.

References