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Does market structure matter on banks’ profitability and stability? Emerging vs. advanced economies

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  • Mirzaei, Ali
  • Moore, Tomoe
  • Liu, Guy

Abstract

We empirically investigate the effects of market structure on profitability and stability for 1929 banks in 40 emerging and advanced economies over 1999–2008 by incorporating the traditional structure-conduct-performance (SCP) and relative-market-power (RMP) hypotheses. We observe that a greater market share leads to higher bank profitability being biased toward the RMP hypothesis in advanced economies, yet neither of the hypotheses is supported for profitability in emerging economies. The SCP appears to exert a destabilising effect on advanced banks, suggesting that a more concentrated banking system may be vulnerable to financial instability, however, the RMP seems to perform a stabilising effect in both economies. Evidence also highlights that profitability and stability increase with an increased interest-margin revenues in a less competitive environment for emerging markets. Overall, these results suggest that although policy measures to promote competition may dampen economic rent, excessive implementation may have an undesired destabilising impact on banks.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 37 (2013)
Issue (Month): 8 ()
Pages: 2920-2937

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Handle: RePEc:eee:jbfina:v:37:y:2013:i:8:p:2920-2937

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Web page: http://www.elsevier.com/locate/jbf

Related research

Keywords: Market structure; Bank profitability; Bank stability; Emerging banks;

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References

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Cited by:
  1. Muhamad Muda & Amir Shaharuddin & Abdelhakim Embaya, 2013. "Comparative Analysis of Profitability Determinants of Domestic and Foreign Islamic Banks in Malaysia," International Journal of Economics and Financial Issues, Econjournals, vol. 3(3), pages 559-569.
  2. Imola Driga, 2013. "Financial Crisis And Bank Profitability – The Case Of Romania," Annals of University of Craiova - Economic Sciences Series, University of Craiova, Faculty of Economics and Business Administration, vol. 1(41), pages 34-45.

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