Market Structure and Bank Profitability: Emerging versus Advanced Economies

Ali Mirzaei (), Guy Liu () and John Beirne
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Ali Mirzaei: Capital University of Economics and Business
Guy Liu: Brunel University

Economics Bulletin, 2012, vol. 32, issue 4, 3166-3173

Abstract: We investigate the effects of market structure on bank profitability in 40 emerging and advanced economies. We find that bank profitability in relation to market structure is different between developed and emerging banking markets. First, in developed banking sectors, profitability is positively related to bank market share, implying evidence of market rivalry. This is not the case for emerging banking sectors however. Second, in emerging, but not advanced economies, the concentration of large banks is negatively related to profitability, indicating that large banks are inefficient (which may be caused by state intervention in large bank lending practices for political reasons). Third, more sales-generating and profit-generating bank finance is found in developed markets but not emerging markets. The differences in the findings between the two types of economies imply that the developed banking market is much more competitive than the emerging counterpart where it is still characterised by state intervention.

Keywords: Market structure; concentration; bank profitability (search for similar items in EconPapers)
JEL-codes: G1 G2 (search for similar items in EconPapers)
Date: 2012-11-19
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