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Market structure and performance in Spanish banking using a direct measure of efficiency

Author

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  • Joaquín Maudos Villarroya

    (Instituto Valenciano de Investigaciones Económicas)

Abstract

This paper analyzes the relationship between market structure and performance within the Spanish banking industry. Three different stochastic measures of efficiency are used (based on three alternative distributional assumptions for inefficiency: half-normal, normal-truncated and exponential). The results obtained support the "modified efficient structure" hypothesis since, even though efficiency is the main determinant of profitability, market power (as reflected in a market share variable), also affects profitability. The results obtained also show that market share is an inadequate proxy for efficiency. Este trabajo analiza la relación existente entre la estructura de mercado y la rentabilidad del sector bancario español. Para ello, se utilizan tres medidas alternativas de eficiencia obtenidas a partir de la estimación de una función estocástica de costes bajo tres supuestos distribucionales (half-normal, norn1al truncada y exponencial). Los resultados obtenidos permiten aceptar la hipótesis de "eficiencia modificada" ya que, si bien la eficiencia es el principal determinante de la rentabilidad, el poder de mercado (aproximado a través de la cuota de mercado) también afecta a la rentabilidad. Los resultados obtenidos también muestra lo inadecuado de utilizar la variable cuota de mercado como proxy de la eficiencia.

Suggested Citation

  • Joaquín Maudos Villarroya, 1996. "Market structure and performance in Spanish banking using a direct measure of efficiency," Working Papers. Serie EC 1996-12, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  • Handle: RePEc:ivi:wpasec:1996-12
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    References listed on IDEAS

    as
    1. Pindyck, Robert S, 1982. "Adjustment Costs, Uncertainty, and the Behavior of the Firm," American Economic Review, American Economic Association, vol. 72(3), pages 415-427, June.
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    More about this item

    Keywords

    Estructura de mercado; eficiencia; sector bancario español Market structure; efficiency; banking; Spain;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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