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Strategic Groups and Banks’ Performance

Author

Listed:
  • Grzegorz Halaj

    (National Bank of Poland, Warsaw, Poland)

  • Dawid Zochowski

    (European Central Bank, Frankfurt, Germany)

Abstract

The theory of strategic groups predicts the existence of stable groups of companies that adopt similar business strategies. The theory also predicts that groups will differ in performance and in their reaction to external shocks. We use cluster analysis to identify strategic groups in the Polish banking sector. We find stable groups in the Polish banking sector constituted after the year 2000 following the major privatisation and ownership changes connected with transition to the mostly-privately-owned banking sector in the late 90s. Using panel regression methods we show that the allocation of banks to groups is statistically significant in explaining the profitability of banks. Thus, breaking down the banks into strategic groups and allowing for the different reaction of the groups to external shocks helps in a more accurate explanation of profits of the banking sector as a whole. Therefore, a more precise ex ante assessment of the loss absorption capabilities of banks is possible, which is crucial for an analysis of banking sector stability. However, we did not find evidence of the usefulness of strategic groups in explaining the quality of bank portfolios as measured by irregular loans over total loans, which is a more direct way to assess risks to financial stability.

Suggested Citation

  • Grzegorz Halaj & Dawid Zochowski, 2009. "Strategic Groups and Banks’ Performance," Financial Theory and Practice, Institute of Public Finance, vol. 33(2), pages 153-186.
    • Handle: RePEc:ipf:finteo:v:33:y:2009:i:2:p:153-186
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    Cited by:

    1. Farnè, Matteo & Vouldis, Angelos, 2017. "Business models of the banks in the euro area," Working Paper Series 2070, European Central Bank.
    2. Matteo Farnè & Angelos T. Vouldis, 2021. "Banks’ business models in the euro area: a cluster analysis in high dimensions," Annals of Operations Research, Springer, vol. 305(1), pages 23-57, October.
    3. Jaksa Kristo & Iva Mandac, 2015. "Characteristics of bank financial intermediation in Croatian counties," Financial Theory and Practice, Institute of Public Finance, vol. 39(1), pages 57-82.
    4. Anjan Roy, 2021. "Business segment diversification of private banks in India," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 48(3), pages 295-308, September.

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