Are the effects of market concentration and income diversification on banking performance persistent?

We analyze the effects of market concentration and income diversification on banking performance. We used a sample of 134 countries for the period 1994-2011 and used the GMM estimator proposed by Arellano and Bover (1995). Our results show that market concentration and income diversification have a positive and non-linear effect on bank performance. The non-linearity suggests that the positive effect is reversed if the banking industry has high levels of market concentration and income diversification. During an economic crisis, the banking industry reduces diversification to support its performance. These results are relevant for the design of financial policy and banking strategies.

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Market Concentration and Income Diversification: Do They Always Promote the Financial Stability of Banking Industry?

Revista Finanzas y Política Económica ◽

10.14718/revfinanzpolitecon.v12.n2.2020.3270 ◽

2020 ◽

Vol 12 (2) ◽

pp. 341-365

Author(s):

Jorge Andrés Muñoz Mendoza ◽

Sandra María Sepúlveda Yelpo ◽

Carmen Lissette Veloso Ramos ◽

Carlos Leandro Delgado Fuentealba

Keyword(s):

Nonlinear Effect ◽

Financial Stability ◽

Banking Industry ◽

Banking System ◽

Market Concentration ◽

Bank Risk ◽

Threshold Values ◽

Financial Policies ◽

Income Diversification ◽

Gmm Estimator

This paper analyzes the effects of market concentration and income diversification on the financial stabilityof the world banking system. It uses the GMM estimator proposed by Arellano and Bover (1995) to study 206 countries between 1994 and 2015. The results show that market concentration and income diversification have a positive and nonlinear effect on financial stability; and a negative and nonlinear effect on bank risk. The nonlinearity shape suggests that the effects are reversed when the banking industry has a higher market concentration and income diversification. In these cases, lower levels of stability and higher risks would characterize the banking industry. Nonlinearity establishes threshold values that are relevantfor the empirical discussion oriented to an optimal design of financial policies and banking strategies.

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Market structure-performance hypothesis in Kenyan banking industry

International Journal of Emerging Markets ◽

10.1108/ijoem-12-2012-0178 ◽

2015 ◽

Vol 10 (4) ◽

pp. 697-710 ◽

Cited By ~ 7

Author(s):

Solomon W. Giorgis Sahile ◽

Daniel Kipkirong Tarus ◽

Thomas Kimeli Cheruiyot

Keyword(s):

Market Structure ◽

Market Efficiency ◽

Market Share ◽

Commercial Banks ◽

Banking Sector ◽

Banking Industry ◽

Developing Economies ◽

Market Concentration ◽

Bank Performance ◽

Content Type

Purpose – The purpose of this paper is to test market structure-performance hypothesis in banking industry in Kenya. Specifically, the structure-conduct-performance (SCP) and market efficiency hypotheses were examined to determine how market concentration and efficiency affect bank performance in Kenya. Design/methodology/approach – The study used secondary data of 44 commercial banks operating from 2000 to 2009. Three proxies to measure bank performance were used while market concentration and market share were used as proxies for market structure. Market concentration was measured using two concentration measures; the concentration ratio of the four largest banks (CR4) and Herfindahl-Hirschman Index, while market share was used as a proxy for efficiency. The study made use of generalized least square regression method. Findings – The empirical results confirm that market efficiency hypothesis is a predictor of firm performance in the banking sector in Kenya and rejects the traditional SCP hypothesis. Thus, the results support the view that efficient banks maximize profitability. Practical implications – The study provides insights into the role of efficiency in enhancing profitability in commercial banks in Kenya. It has managerial implication that profitable banks ought to be efficient and dispels the notion of collusive behavior as a precursor for profitability. Originality/value – The paper fills an important gap in the extant literature by proving insights into what determines bank profitability in banking sector in Kenya. Although this area is rich in research, little work has been conducted in the developing economies and in particular no study in the knowledge has addressed this critical issue in Kenya.

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Relevance of Shari’ah Governance in Driving Performance of Islamic Banks during the Financial Crisis: International Evidence

Banking and Finance ◽

10.5772/intechopen.92368 ◽

2020 ◽

Author(s):

Naji Mansour Nomran ◽

Razali Haron

Keyword(s):

Financial Crisis ◽

High Efficiency ◽

Banking Industry ◽

Small Sample ◽

Islamic Banking ◽

Islamic Banks ◽

Governance Mechanism ◽

Gmm Estimator ◽

The Impact ◽

Positive Effect

This study aims to examine the impact of Shari’ah governance mechanism on the performance of Islamic banks (IBs) during the financial crisis of 2008. Data were collected from 66 IBs over 18 countries covering the period of 2007–2015 and analyzed using the System-GMM estimator. The findings indicate that an increase in SSB effectiveness increases IBs’ performance even during the crisis periods. A possible justification for this positive effect is related to the SG structure of IBs that allows them to undertake higher risks to achieve a high efficiency level. For this, the IBs, policymakers and practitioners should consider these findings when aiming to improve SG practices in the Islamic banking industry, which in turn may help in protecting IBs during crisis and non-crisis periods. More specifically, they should give due importance to SSB (size, cross-membership, educational qualification, reputation and expertise) in enhancing the performance of IBs during the crisis and non-crisis periods. This study provides additional evidence on how IBs can sustain their performance during either crisis or non-crisis periods through adopting appropriate SG structure. However, the study only focuses on a small sample of 66 IBs due to lack of the data.

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Market Concentration, Capital and Risk Taking in Banking Industry

Jurnal Manajemen Teori dan Terapan | Journal of Theory and Applied Management ◽

10.20473/jmtt.v14i1.25922 ◽

2021 ◽

Vol 14 (1) ◽

pp. 69

Author(s):

Erika Sefila Putri ◽

Rahmat Setiawan

Keyword(s):

Risk Taking ◽

Commercial Banks ◽

Banking Industry ◽

Banking System ◽

Market Concentration ◽

Bank Risk ◽

Bank Capital ◽

Banking Market ◽

The Relationship ◽

Positive Effect

Banking market concentration is an interesting banking topic to study because the banking market structure plays an important role in a country's banking system. This study aims to determine the relationship between banking market concentration and bank risk taking, and bank capital as a moderating variable on the relationship between bank capital and bank risk taking. The test was conducted using multiple linear regression on 104 conventional commercial banks in Indonesia from 2007 to 2016. The results of this study indicate that banking market concentration has a positive effect on bank risk-taking, and bank capital weakens the positive effect of bank market concentration on bank risk-taking.

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Human capital, income diversification and bank performance–an empirical study of East African banks

Asian Journal of Accounting Research ◽

10.1108/ajar-06-2020-0041 ◽

2020 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Peter Nderitu Githaiga

Keyword(s):

Human Capital ◽

East Africa ◽

Control Variable ◽

Bank Performance ◽

Income Diversification ◽

Content Type ◽

Bank Managers ◽

The Impact ◽

The Relationship ◽

Positive Effect

PurposeThe purpose of this paper is to examine whether income diversification moderates the relationship between human capital and bank performance.Design/methodology/approachThe study uses a sample of 53 banks and panel data for the years 2010–2018. The hypotheses are tested through hierarchical multiple regression and the choice between fixed effect and random effect estimation is based on the results of the Hausman test.FindingsThe study finds that human capital and income diversification significantly influence bank performance; however, the direction of the causality varies. While human capital has a positive effect, income diversification has a negative effect. Additionally, the interaction term has a negative and significant effect on bank performance, inferring that income diversification has an antagonistic effect on the human capital and bank performance relationship. For the control variable, liquidity and asset quality negatively affects bank performance while capitalization has a positive effect.Research limitations/implicationsHuman capital was measured as human capital efficiency (HCE), which is a quantitative measure of human capital, hence future studies can use qualitative measures. Also, the study focused on commercial banks in East Africa, future researcher may possibly consider other regions and industries, which would shed more insights.Practical implicationsThe results of this paper provide valuable insights. Bank managers can get a better understanding of the impact of human capital on bank performance, and the need to invest more in human capital development. Further, the study cautions bank managers that engaging in non-lending activities might destroy the economic value of human capital and ultimately lower performance. The study also recommends that policymakers should address the obstacles to banks' income diversification, for instance relaxing regulations restricting diversification; this might enable banks to leverage related financial service activities for optimal utilization of human capital and improve banks' profitability.Originality/valueWhile a good number of previous studies investigated the direct effect of human capital and income diversification on the performance of banks, this study examines the moderating role of income diversification on the relationship between human capital and performance of banks in East Africa.

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Using Hurdle Models to Appraise the Non-Linear Effect of age in Entrepreneurship

Proceedings of the 19th European Conference on Research Methods ◽

10.34190/erm.20.0127 ◽

2020 ◽

Keyword(s):

Linear Effect ◽

Hurdle Models ◽

Non Linear Effect ◽

Non Linear ◽

Effect Of Age

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Collusion in the Turkish Banking Sector

International Conference on Eurasian Economies 2012 ◽

10.36880/c03.00444 ◽

2012 ◽

Author(s):

Resul Aydemir

Keyword(s):

Banking Sector ◽

Structural Model ◽

Banking Industry ◽

Market Concentration ◽

Regulatory Agencies ◽

Sample Period ◽

Conjectural Variation ◽

Average Mark ◽

Market Conduct ◽

Variation Approach

In this paper, I consider the Turkish Banking Industry, which is dominated by a few large banks. Using a conjectural variation approach, I estimate a structural model to examine the market conduct of the largest banks for the period 1988-2009. Estimation results suggest that the Turkish banks colluded in the loan market during the sample period where the average mark-up is estimated to be in the range of 44% to 86% depending on the empirical specification. This evidence demonstrates a conflict between market concentration and competition in the Turkish banking industry. Thus, regulatory agencies should be cautious against attempts to increase concentration in the banking industry.

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