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Effects of market share on the bank’s profitability

Author

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  • Evgeni Genchev

    (Economics Department, Faculty of Economics, Trakia University, Bulgaria)

Abstract

The relationship between market share and profitability is perhaps the most-studied single phenomenon in business policy. The purpose of this study is an attempt to explore the impact of various factors (such as market share, concentration ratio) on profitability measurements of banks in Bulgaria. The analysis is based on balanced panel data of 22 banks over the period 2006 to 2010. For the measurement of bank profitability using one of the most widely used indicators: return on equity (ROE) The main research hypothesis is that the leading banks (on market share) should achieve better profitability. The survey results show that the relationship between market share and profitability of banks is positive and statistically significant. Empirical results confirm that there was no statistically significant relationship between the concentration in the Bulgarian banking sector and its profitability. The estimation results suggest that the profitability of Bulgarian banks is influenced only by factors related to their management decisions and not by changes in the external macroeconomic environment. The findings of this study have several managerial implications. First, the bank can enlarge their market share to improve profitability. Second, bank managers should not worry about the degree of concentration in the industry. Analysis shows that it is management rather than concentration which affects bank profitability.

Suggested Citation

  • Evgeni Genchev, 2012. "Effects of market share on the bank’s profitability," Review of Applied Socio-Economic Research, Pro Global Science Association, vol. 3(1), pages 87-94, July.
    • Handle: RePEc:rse:wpaper:v:3:y:2012:i:1:p:87-94
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    File URL: http://reaser.eu/RePec/rse/wpaper/11_Rev3_Genchev_MarketShare.pdf
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    References listed on IDEAS

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    1. John Goddard & Phil Molyneux & John O. S. Wilson, 2004. "The profitability of european banks: a cross‐sectional and dynamic panel analysis," Manchester School, University of Manchester, vol. 72(3), pages 363-381, June.
    2. Athanasoglou, Panayiotis P. & Brissimis, Sophocles N. & Delis, Matthaios D., 2008. "Bank-specific, industry-specific and macroeconomic determinants of bank profitability," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 18(2), pages 121-136, April.
    3. Claeys, Sophie & Vander Vennet, Rudi, 2008. "Determinants of bank interest margins in Central and Eastern Europe: A comparison with the West," Economic Systems, Elsevier, vol. 32(2), pages 197-216, June.
    4. Nikolay Nenovsky & Petar Chobanov & Gergana Mihaylova & Darina Koleva, 2008. "Efficiency of the Bulgarian Banking System: Traditional Approach and Data Envelopment Analysis," ICER Working Papers 22-2008, ICER - International Centre for Economic Research.
    5. Athanasoglou, Panayiotis & Delis, Manthos & Staikouras, Christos, 2006. "Determinants Of Bank Profitability In The South Eastern European Region," MPRA Paper 10274, University Library of Munich, Germany.
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    3. Hadia Mansoor, 2020. "Determinants of Profitability: A Comparative Study of Textile and Cement Sector of Pakistan," Information Management and Business Review, AMH International, vol. 11(4), pages 13-26.

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    More about this item

    Keywords

    market share; profitability; Bulgarian bank system; concentration ratio.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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