Relationship between Structure and Performance in the Banking Industry of Iran

Akbar Najahi (), Yeghaneh Mousavi Jahromi (), Farhad Khodadadkashi () and Golam Ali Haji ()
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Akbar Najahi: Department of Economics and Management, Islamic Azad University of Arak
Yeghaneh Mousavi Jahromi: Department at Payam-e Noor University
Farhad Khodadadkashi: Department of Economics, Payam-e Noor University
Golam Ali Haji: Department of Economics and Management, Islamic Azad University

Journal of Money and Economy, 2016, vol. 11, issue 4, 443-466

Abstract: The purpose of this study is to investigate the causal relationship between the structure and performance in the banking industry of Iran. In doing so, the data and information of public and private banks from 1996 to 2015 is examined using Toda-Yamamoto causality test (TY) and Autoregressive Distributed Lag (ARDL) approach. Herfindahl-Hirschman index (HHI) (the degree of market concentration) trend shows that over the last two decades, the degree of concentration has reduced. In other words, the structure of banking industry has moved away from monopoly conditions towards competitive markets. The degree of profitability and the ratio of net return on assets (ROA) are used for the performance of banking industry. According to the results, the banks' profitability rate has been increasing over the years under study. The results of Toda-Yamamoto causality test (TY) and Autoregressive Distributed Lag (ARDL) approach also show that in the banking industry of Iran, both in the short term and long term, there is a one-way causal relationship from performance to structure. In other words, the structuralist theory of the banking industry of Iran is not approved and the Chicago School theory of the causal relationship between performance and structure cannot be rejected.

Keywords: Market Structure; HHI; Performance; ARDL; Toda-Yamamoto Causality Test (search for similar items in EconPapers)
JEL-codes: D22 G21 L13 L16 L22 (search for similar items in EconPapers)
Date: 2016
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