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Determinants of Bank Profitability in Austria. A Micro-Macro Approach

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  • Franz R. Hahn

Abstract

In this study we conducted a panel econometric analysis aimed at testing the most prominent hypotheses in the literature on bank profitability: the structure-conduct-performance hypothesis (SCPH), the efficient-structure hypothesis and the relative-market-power hypothesis. Further, we tested 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 was used to carry out the econometric analyses. On the basis of this extended dataset we found support for the traditional SCPH. In the face of the findings obtained it appears relatively safe to maintain that the Austrian banks do exert, on average, some local market power but the gains in terms of excess profits are rather minor due to low deterrence powers of the incumbent banks. As to policy implications, the study holds that the presented empirical evidence is in accordance with the view that consolidation of the banking sector should primarily progress through domestic banking mergers and acquisitions. This has been the common practice in many OECD countries, including Austria, since the early 1990s.

Suggested Citation

  • Franz R. Hahn, 2005. "Determinants of Bank Profitability in Austria. A Micro-Macro Approach," WIFO Studies, WIFO, number 25688, June.
  • Handle: RePEc:wfo:wstudy:25688
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    Cited by:

    1. Franz R. Hahn, 2007. "Determinants of Bank Efficiency in Europe. Assessing Bank Performance Across Markets," WIFO Studies, WIFO, number 31499, January.
    2. Rokibul Hasan Sakib & Dewan Azmal Hossain, 2020. "Determinants of Profitability of Commercial Banks in Bangladesh," International Journal of Science and Business, IJSAB International, vol. 4(9), pages 1-16.
    3. 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.
    4. Karl Aiginger & Gunther Tichy & Ewald Walterskirchen, 2006. "WIFO White Paper: Towards Higher Employment via Economic Growth Based on Innovation and Qualification. Summary," WIFO Studies, WIFO, number 28078, January.
    5. Franz R. Hahn, 2005. "Testing for Profitability and Contestability in Banking," WIFO Working Papers 261, WIFO.
    6. Karl Aiginger & Gunther Tichy & Ewald Walterskirchen, 2006. "WIFO-Weißbuch: Mehr Beschäftigung durch Wachstum auf Basis von Innovation und Qualifikation. Zusammenfassung," WIFO Studies, WIFO, number 27639, January.

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