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Strategic groups in Polish banking sector and financial stability

Author

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  • Hałaj, Grzegorz
  • Żochowski, Dawid

Abstract

The paper provides results of research concerning identification of strategic groups in the Polish banking sector and tests of the usefulness of these groups in the assessment of financial stability. The theory of strategic groups predicts the existence of stable groups of companies, stemming from the strategy adopted by them. The theory also predicts that groups differ in performance. Our empirical research, preceded by a review of relevant literature, has been carried out on the basis of a cluster analysis with the use of Ward’s algorithm that optimises allocation of banks into groups. We have identified strategic groups in the Polish banking sector, sustained over time after the year 2000. We have also observed statistically significant differences in performance between banks belonging to different groups, and we have demonstrated further that modelling of profitability within groups with the use of regression yields more precise estimates of parameters than in the case of estimation of a model for the whole sector. Thus, breaking down the whole banking sector into strategic groups creates a possibility to forecast the banking sector earnings in a more precise way, i.e. to provide a more precise ex ante assessment of stability of the financial system.

Suggested Citation

  • Hałaj, Grzegorz & Żochowski, Dawid, 2006. "Strategic groups in Polish banking sector and financial stability," MPRA Paper 326, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:326
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    File URL: https://mpra.ub.uni-muenchen.de/326/1/MPRA_paper_326.pdf
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    References listed on IDEAS

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    1. R. E. Caves & M. E. Porter, 1977. "From Entry Barriers to Mobility Barriers: Conjectural Decisions and Contrived Deterrence to New Competition," The Quarterly Journal of Economics, Oxford University Press, vol. 91(2), pages 241-261.
    2. C. West Churchman, 1963. "The X of X," Management Science, INFORMS, vol. 9(3), pages 351-357, April.
    3. Oster, Sharon M, 1982. "Intraindustry Structure and the Ease of Strategic Change," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 376-383, August.
    4. Goodhart, Charles A. E. & Sunirand, Pojanart & Tsomocos, Dimitrios P., 2004. "A model to analyse financial fragility: applications," Journal of Financial Stability, Elsevier, vol. 1(1), pages 1-30, September.
    5. Tremblay, Victor J, 1985. "Strategic Groups and the Demand for Beer," Journal of Industrial Economics, Wiley Blackwell, vol. 34(2), pages 183-198, December.
    6. Porter, Michael E, 1979. "The Structure within Industries and Companies' Performance," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 214-227, May.
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    Cited by:

    1. Adam Głogowski, 2008. "Macroeconomic determinants of Polish banks’ loan losses – results of a panel data study," NBP Working Papers 53, Narodowy Bank Polski, Economic Research Department.

    More about this item

    Keywords

    Strategic groups; financial stability; clustering; Ward algorithm;

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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