Banking Competition and Efficiency: A Micro-Data Analysis on the Czech Banking Industry

Pruteanu-Podpiera, Anca; Weill, Laurent; Schobert, Franziska

doi:10.1057/palgrave.ces.8100248

Cited by 103 publications

(40 citation statements)

References 45 publications

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“…The empirical evidence that supports this hypothesis is still scarce. For instance, Pruteanu-Podpiera and Weill (2008) have examined the effect of market power on efficiency in the Czech Republic, and found that greater market power is associated with greater efficiency. A similar story can be found in Maudos and DeGuevara (2007) for the case of the Spanish banking sector.…”

Section: Background and Related Literature Reviewmentioning

confidence: 99%

The effect of market structure, regulation, and risk on banks efficiency

Maghyereh

Awartani

2014

Journal of Economic Studies

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Purpose-The purpose of this paper is to analyze the efficiency performance of the Gulf Cooperation Countries (GCC) banking sector. The primary focus is to assess whether market power, risk taking activities, and regulations have significant effects on GCC banks' efficiency performance. Design/methodology/approach-The estimation and inference has been implemented using a double bootstrap procedure that simultaneously corrects for bias and validates inference on the influence of covariates. In the first stage, efficiency scores are estimated with data envelopment analysis (DEA). In the second stage, variation in the resulting efficiency scores is explained using a truncated regression model with inference based on a semi-parametric bootstrap routine. Findings-The authors found compelling evidence that efficiency is not independent of the market structure, the bank's risk taking activities, and the regulatory environment. In particular, the Lerner Index provides evidence that market power decreases efficiency. The capital adequacy, the supervisory power and the market discipline were all found to improve efficiency. Additionally, when the risk is measured by the Z-Score or even by the ratio of non-performing loans to total loans, it adversely affects efficiency. Research limitations/implications-The results of the current study have important implications for regulators and supervisors. Promoting banks' competitive environment in the GCC countries through reducing the information barriers to entry, encouraging bank privatization, and lowering the activities restrictions can potentially improve operational efficiency of banks. Also enhancing banks' diversification activities and risk management techniques may have the advantage of increasing operational efficiency. Furthermore, improvements in the regulatory conditions that enhance banking supervision and monitoring would also improve efficiency. Originality/value-The main contributions of the paper are threefold: first, to the knowledge, this study is the first to employ by far the most comprehensive data set of GCC banks investigated to date. Second, the analysis focusses on the influence of a wide set of factors, most of them was not covered before in related economic literature on bank efficiency of the GCC countries. Third, the methodological innovation involves applying a double bootstrap procedure proposed by Simar and Wilson (2007).

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Section: Background and Related Literature Reviewmentioning

confidence: 99%

The effect of market structure, regulation, and risk on banks efficiency

Maghyereh

Awartani

2014

Journal of Economic Studies

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“…However, few authors have used Granger causality test to estimate and investigate empirical relationship between bank performance and market competition. Pruteanu-Podpiera et al (2008), examined the Czech banking market between 1994 and 2005 and tried to estimate the effects of banking competition to efficiency. The results of their analysis rejected the quiet life hypothesis and indicated a negative relationship between competition and efficiency in banking.…”

Section: Literature Reviewmentioning

confidence: 99%

The Structure – Conduct – Performance Paradigm in the European Union Banking

Gavurová

Kočišová

Kotásková

2017

Economics &Amp; Sociology

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ABSTRACT. In this study we investigate the structure and performance at the European Union (EU) banking market as a whole between 2008 and 2015. The structure of this banking market was measured by two main concentration indices: the Herfindahl-Hirschman Index (HHI) and the Concentration Ratio for 5 largest banks (CR5). The results show a stable development in concentration until 2012, and a significant decrease in 2012. Since 2013, the level of concentration increased, reaching its historical maximum at the end of 2014, when the increase in market concentration was reflecting primarily the decline in the number of credit institutions. The performance was measured by means of profitability indicators: the Return on Assets (ROA) and the Return on Equity (ROE). Since 2008, the development of the market in question was affected by the financial crisis, which resulted in low profitability till the end of 2013. In more recent years the profitability in European banking market slightly increased. The purpose of this paper was to examine the relations between structure and performance. We tried to test the presence of structure-conductperformance (SCP) paradigm in the EU conditions. The presence of this paradigm was verified using the Granger causality test for panel data. The results of our analysis show that under the studied conditions only the one-way relationship running from banking sector performance to banking market concentration was approved. The findings do not confirm the presence of the SCP paradigm, but are in line with the quiet life hypothesis, thus indicating there is a negative relationship between concentration and performance at European banking market. JEL Classification:G21, C12, D40

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“…For the Czech Republic they identifi ed the monopolistic competition using Panzar-Rosse model in 1995. Bikker and Spierdijk (2008 determined by Panzar-Rosse approach the monopolistic competition in the Czech Republic in 1999. Pruteanu-Podpiera et al (2008 showed in the Czech credit market growth in the absence of competition by Lerner index during the privatization period (1999)(2000)(2001)(2002).…”

Section: Concentration Of the Banking Sectormentioning

confidence: 99%

Estimation of the competitive conditions in the Czech banking sector

Stavárek¹,

Řepková²

2014

Acta Univ. Agric. Silvic. Mendelianae Brun.

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The literature on the measurement of competition can be divided into two major streams: structural and non-structural approaches. The structural approach to the measurement of competition embraces the Structure-Conduct-Performance paradigm (SCP) and the effi ciency hypothesis. The two former models investigate whether a highly concentrated market causes collusive behavior among the larger banks resulting in superior market performance, and whether it is the effi ciency of larger banks that enhances their performance. These structural models link competition to concentration. Non-structural models for the measurement of competition, namely the Iwata model (Iwata, 1974), the Bresnahan model (Bresnahan (1982) and Lau (1982)), and the Panzar-Rosse (P-R) model (Panzar and Rosse, 1987), were developed in reaction to the theoretical and empirical defi ciencies of the structural models. These New Empirical Industrial Organisation (NEIO) approaches test competition and the use of market power, and stress the analysis of banks' competitive conduct in the absence of structural measures (Bikker and Haaf, 2000, p. 17).While tests of market power carried out employing the traditional SCP approach, observe the structure of the market (e.g. concentration levels, number of fi rms) and relate this to the conduct (e.g. pricing policies) and performance (e.g. ROA, ROE) of fi rms; in nonstructural approaches empirical studies do not observe the competitive environment but they attempt to measure/infer it. Probably the most important advantage of non-structural approaches is that it cannot be assumed a priori that concentrated markets are not competitive because contestability may depend on the extent of potential competition and not necessarily on market structure. Another advantage of non-structural models is that there is no need to specify a geographic market, since the behavior of individual banks gives an indication of their market power. Non-structural measures of competition are mainly based on the Lerner (1934) measure of monopoly power (Casu and Girardone, 2006, p. 3-4).The Panzar and Rosse model has proven to be a useful tool for observing competition. This model is based on the comparative static properties of the reducedform bank revenue equation. The Panzar-

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Banking Competition and Efficiency: A Micro-Data Analysis on the Czech Banking Industry

Cited by 103 publications

References 45 publications

The effect of market structure, regulation, and risk on banks efficiency

The effect of market structure, regulation, and risk on banks efficiency

The Structure – Conduct – Performance Paradigm in the European Union Banking

Estimation of the competitive conditions in the Czech banking sector

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