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Testing for profitability and contestability in banking: evidence from Austria

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  • Franz Hahn

Abstract

The paper investigates the determinants of banking profitability and banking market conditions in Austria. We conduct a panel econometric analysis which allows for testing the hypotheses which have become the most prominent in the literature on bank profitability: the structure-conduct-performance hypothesis, the efficient-structure hypothesis and the relative market-power hypothesis. Further, we test whether Austrian banking markets are, on average, contestable. A newly compiled dataset covering more than 700 Austrian banks ranging over the period from 1995 to 2002 is used to carry out these econometric analyses. The empirical findings support the view that the Austrian banks do exert, on average, some local market power. However, the gains in terms of excess profits are rather minor as a result of low deterrence powers of the incumbent banks.

Suggested Citation

  • Franz Hahn, 2008. "Testing for profitability and contestability in banking: evidence from Austria," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(5), pages 639-653.
  • Handle: RePEc:taf:irapec:v:22:y:2008:i:5:p:639-653
    DOI: 10.1080/02692170802287722
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    References listed on IDEAS

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    1. Mayerhofer, Peter, 2002. "Austrian border regions and eastern integration: A low competitiveness - high growth paradoxon," HWWA Discussion Papers 202, Hamburg Institute of International Economics (HWWA).
    2. Hempell, Hannah S., 2002. "Testing for Competition Among German Banks," Discussion Paper Series 1: Economic Studies 2002,04, Deutsche Bundesbank.
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    Cited by:

    1. Roberto Patuelli & Andrea Vaona & Christoph Grimpe, 2010. "The German East‐West Divide In Knowledge Production: An Application To Nanomaterial Patenting," Tijdschrift voor Economische en Sociale Geografie, Royal Dutch Geographical Society KNAG, vol. 101(5), pages 568-582, December.
    2. Kondo, Kazumine, 2014. "Do Credit Associations Compete with Each Other in Japanese Regional Lending Markets?," MPRA Paper 56669, University Library of Munich, Germany.
    3. Kondo, Kazumine, 2014. "Cross-Prefecture Expansion of Regional Banks in Japan and Its Effects on Lending-Based Income," MPRA Paper 52978, University Library of Munich, Germany.

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