The effect of market structure on banks’ profitability and stability: Evidence from ASEAN-5 Countries

Sahul Hamid, Fazelina

Abstract

This paper analyses the effect of market structure on profitability and stability using the sample of 130 commercial banks in ASEAN-5 countries (Indonesia, Malaysia, Philippines, Singapore and Thailand) over the period from 2001 to 2013. More specifically, this study investigates the relevance of the structure conduct performance (SCP) and the relative market power (RMP) hypotheses. This paper also examines the relevance of ‘concentration-stability’ and ‘concentration-fragility’ hypotheses in the case of ASEAN-5 banking. In doing so, we control for the effect of bank-specific and country-specific factors. Empirical results based on system-generalised method of moments (GMM) analyses support the RMP hypothesis but fail to support the SCP hypothesis. We find that concentration stabilizes the banking sector. Evidence also highlights the importance of bank-specific controls related to capitalization and costs on profitability and stability. Implications for policy-makers are addressed.

• Journal Article Type: Article
• Acceptance Date: Nov 14, 2017
• Online Publication Date: Nov 30, 2017
• Publication Date: Oct 2, 2017
• Deposit Date: Jan 26, 2023
• Journal: International Economic Journal
• Print ISSN: 1016-8737
• Electronic ISSN: 1743-517X
• Publisher: Taylor & Francis (Routledge)
• Peer Reviewed: Peer Reviewed
• Volume: 31
• Issue: 4
• Pages: 578-598
• DOI: https://doi.org/10.1080/10168737.2017.1408668
• Keywords: General Economics, Econometrics; Finance; Market structure; bank profitability; bank stability; ASEAN; system-GMM
• Public URL: https://uwe-repository.worktribe.com/output/10307899
• Publisher URL: https://www.tandfonline.com/doi/full/10.1080/10168737.2017.1408668
• Additional Information: Peer Review Statement: The publishing and review policy for this title is described in its Aims & Scope.; Aim & Scope: http://www.tandfonline.com/action/journalInformation?show=aimsScope&journalCode=riej20; Received: 2017-04-05; Accepted: 2017-11-14; Published: 2017-11-30