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Market Structure and Bank Profitability: Emerging versus Advanced Economies

Author

Listed:
  • Ali Mirzaei

    (Capital University of Economics and Business)

  • Guy Liu

    (Brunel University)

  • John Beirne

    (European Central Bank)

Abstract

We investigate the effects of market structure on bank profitability in 40 emerging and advanced economies. We find that bank profitability in relation to market structure is different between developed and emerging banking markets. First, in developed banking sectors, profitability is positively related to bank market share, implying evidence of market rivalry. This is not the case for emerging banking sectors however. Second, in emerging, but not advanced economies, the concentration of large banks is negatively related to profitability, indicating that large banks are inefficient (which may be caused by state intervention in large bank lending practices for political reasons). Third, more sales-generating and profit-generating bank finance is found in developed markets but not emerging markets. The differences in the findings between the two types of economies imply that the developed banking market is much more competitive than the emerging counterpart where it is still characterised by state intervention.

Suggested Citation

  • Ali Mirzaei & Guy Liu & John Beirne, 2012. "Market Structure and Bank Profitability: Emerging versus Advanced Economies," Economics Bulletin, AccessEcon, vol. 32(4), pages 3166-3173.
    • Handle: RePEc:ebl:ecbull:eb-12-00687
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Market structure; concentration; bank profitability;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services

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