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Dynamics of Profitability in the Turkish Banking Industry

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  • Evrim TURGUTLU

    () (Dokuz Eylul University, Faculty of Business and Administrative Sciences, Department of Economics)

Abstract

Dynamics of profitability have important implications for the market structure and competition in the banking industry. There is a well-established literature on this issue comprising non-banking industries, however research on banking is comparatively small. Moreover, there is a lack of research comprising the dynamics of profitability in the developing banking industries. Hence, this paper focuses on the Turkish banking industry to analyze both the dynamics and determinants of profitability in the Turkish banking industry over the period 2006:4-2012:2. First, two competing hypotheses, persistence of profit and competitive environment hypotheses are tested using a dynamic panel data model. Variables representing bank size, credit risk, managerial efficiency, financial soundness, market competition, monetary policy and economic freedom are also incorporated in this model to investigate the determinants of bank profitability. System Generalized Method of Moments (SGMM) is used to estimate this dynamic model. The evidence from the findings indicate the validity of the persistence of profit hypothesis. Moreover, bank profitability has been mostly affected by the capital ratio which could have further implications through the Basel III period. The results also indicate positive impact of improvement in financial soundness of banks on profitability.

Suggested Citation

  • Evrim TURGUTLU, 2014. "Dynamics of Profitability in the Turkish Banking Industry," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 14(1), pages 43-52.
  • Handle: RePEc:ege:journl:v:14:y:2014:i:1:p:43-52
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    References listed on IDEAS

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    1. Panzar, John C & Rosse, James N, 1987. "Testing for "Monopoly" Equilibrium," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 443-456, June.
    2. Adelina Gschwandtner, 2005. "Profit persistence in the 'very' long run: evidence from survivors and exiters," Applied Economics, Taylor & Francis Journals, vol. 37(7), pages 793-806.
    3. Maruyama, Nobuhiro & Odagiri, Hiroyuki, 2002. "Does the 'persistence of profits' persist?: a study of company profits in Japan, 1964-97," International Journal of Industrial Organization, Elsevier, vol. 20(10), pages 1513-1533, December.
    4. John Goddard & Hong Liu & Phil Molyneux & John O.S. Wilson, 2010. "Do Bank Profits Converge?," Working Papers 10004, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
    5. Mueller,Dennis C., 2009. "Profits in the Long Run," Cambridge Books, Cambridge University Press, number 9780521101592, May.
    6. Mohd. Zaini Abd Karim & Chan Sok Gee, 2007. "Off-Balance Sheet Activities and Performance of Commercial Banks in Malaysia," The IUP Journal of Financial Economics, IUP Publications, vol. 0(4), pages 67-80, December.
    7. Berna KIRKULAK ULUDAĞ & Habil GÖKMEN, 2011. "Türk bankacılık sektörünün kârlılığının dinamik yaklaşımla test edilmesi," Iktisat Isletme ve Finans, Bilgesel Yayincilik, vol. 26(308), pages 71-98.
    8. Waring, Geoffrey F, 1996. "Industry Differences in the Persistence of Firm-Specific Returns," American Economic Review, American Economic Association, vol. 86(5), pages 1253-1265, December.
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    Cited by:

    1. repec:eco:journ1:2018-01-3 is not listed on IDEAS
    2. repec:eco:journ1:2017-02-34 is not listed on IDEAS

    More about this item

    Keywords

    Profitability; persistence of profits; competitive environment; Turkish banking industry; dynamic panel estimation.;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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