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The Profit-Structure Relationship in Banking--Tests of Market-Power and Efficient-Structure Hypotheses

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  • Berger, Allen N

Abstract

This paper enters the debate between market-power and efficient-structure explanations of the profit-structure relationship in banking by including direct measures of X-efficiency and scale efficiency in the analysis. Structural models of two market-power hypotheses and two efficient-structure hypotheses are expressed in testable reduced form profit equations. This methodology is applied to thirty cross-sections of 1980s banking data. These data are somewhat consistent with one of the market-power and one of the efficient-structure hypotheses. However, none of the hypotheses are overwhelmingly important in explaining bank profits, suggesting that alternative theories be pursued. Copyright 1995 by Ohio State University Press.

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  • Berger, Allen N, 1995. "The Profit-Structure Relationship in Banking--Tests of Market-Power and Efficient-Structure Hypotheses," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(2), pages 404-431, May.
    • Handle: RePEc:mcb:jmoncb:v:27:y:1995:i:2:p:404-31
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