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Market Share, Concentration Ratio and Profitability: Evidence from Indonesian Islamic Banking Industry

Author

Listed:
  • M. Nur Rianto Al Arif

    (Universitas Islam Negeri (UIN) Syarif Hidayatullah Jakarta)

  • Tara Bilqis Awwaliyah

    (Universitas Islam Negeri (UIN) Syarif Hidayatullah Jakarta)

Abstract

Various literatures mention that an increasingly concentrated market will have an impact on performance. This study aims to analyze the influence of market structure on the profitability of the Islamic banking industry in Indonesia, especially after the enactment of the Islamic banking act. This research used panel regression with random effect model. The result shows that market structure - proxies by market share (MS) and concentration ratio (CR4)- does not affect profitability of the Indonesian Islamic banking industry. This result implies that the performance of the Islamic banking industry in Indonesia is not supported by the traditional hypothesis and the efficient structures hypothesis. However, this research indicates that there is no collusive behavior in the Islamic banking industry in Indonesia. Meanwhile, for control variables such as liquidity ratio, default rate, and operational efficiency ratio have been found to have adverse effect on the performance of the Islamic banking industry in Indonesia.

Suggested Citation

  • M. Nur Rianto Al Arif & Tara Bilqis Awwaliyah, 2019. "Market Share, Concentration Ratio and Profitability: Evidence from Indonesian Islamic Banking Industry," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 8(2), pages 189-201.
    • Handle: RePEc:cbk:journl:v:8:y:2019:i:2:p:189-201
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    File URL: http://www.cbcg.me/repec/cbk/journl/vol8no2-10.pdf
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    Citations

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    Cited by:

    1. Asad Abbas & Muhammad Ramzan Sheikh, 2022. "Structure-Conduct-Performance (SCP) Paradigm: A VAR and VECM-based Granger Causality Analysis," Journal of Policy Research (JPR), Research Foundation for Humanity (RFH), vol. 8(4), pages 125-136, December.
    2. Roukia Bouhider, 2021. "Econometric study of the effect of deposits on Islamic Banks profitability: Evidence from Malaysia," Economics Bulletin, AccessEcon, vol. 41(3), pages 1292-1302.
    3. Faisal Abbas & Imran Yousaf & Shoaib Ali & Wing-Keung Wong, 2021. "Bank Capital Buffer and Economic Growth: New Insights from the US Banking Sector," JRFM, MDPI, vol. 14(4), pages 1-13, March.
    4. Vesna Karadžić & Nikola Đalović, 2021. "Profitability Determinants of Big European Banks," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(2), pages 39-56.
    5. Zoran Grubišić & Sandra Kamenković & Tijana Kaličanin, 2021. "Comparative Analysis of the Banking Sector Competitiveness in Serbia and Montenegro," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(1), pages 75-91.
    6. Zoran Grubišić & Sandra Kamenković & Tijana Kaličanin, 2022. "Market Power and Bank Profitability: Evidence from Montenegro and Serbia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 11(1), pages 5-22.
    7. Long Hau Le & Truong An Duong & Tan Nghiem Le, 2020. "Banking Competition and Efficiency: The Case of Vietnamese Banking Industry," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(2), pages 453-460, April.

    More about this item

    Keywords

    market structure; performance; Islamic banking;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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