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Does market power influence bank profits in Mexico? A study on market power and efficiency

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  • Jesus Gustavo Garza-Garcia

Abstract

The Mexican banking sector has experienced a process of consolidation which has caused concerns of possible collusion effects. This article analyses the determinants of bank performance in the Mexican banking sector for the period 2001--2009. Two market power hypotheses, Structure-Conduct-Performance (SCP) and Relative-Market-Power (RMP) alongside two variants of the Efficient-Structure (ES) hypotheses are tested in order to find out whether bank performance has been driven by market structural effects or by greater efficiency. The results state that bank profits have been determined by greater market share, confirming the RMP hypothesis. At the same time, the findings show that profits persist over time and adjust slowly to their natural (average) level, suggesting that the banking sector is not very competitive. Moreover, there is no evidence of a positive relationship between greater efficiency and bank profits. Finally, while capitalization levels increase bank profits, liquidity risk decreases them.

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  • Jesus Gustavo Garza-Garcia, 2012. "Does market power influence bank profits in Mexico? A study on market power and efficiency," Applied Financial Economics, Taylor & Francis Journals, vol. 22(1), pages 21-32, January.
    • Handle: RePEc:taf:apfiec:v:22:y:2012:i:1:p:21-32
    DOI: 10.1080/09603107.2011.595681
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    References listed on IDEAS

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    1. Mark E. Levonian, 1993. "The persistence of bank profits: what the stock market implies," Working Papers in Applied Economic Theory 93-15, Federal Reserve Bank of San Francisco.
    2. Demirguc-Kunt, Asli & Huizinga, Harry, 2000. "Financial structure and bank profitability," Policy Research Working Paper Series 2430, The World Bank.
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    Citations

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    Cited by:

    1. Nathaniel Blankson & Godfred Amewu & Kenneth Ofori-Boateng & Kwame Adanu, 2022. "Banking reforms, efficiency and competition: new empirical evidence from a panel vector autoregressive analysis of Ghanaian banks," SN Business & Economics, Springer, vol. 2(5), pages 1-24, May.
    2. Sara G.Castellanos & Jesus G. Garza-Garcia, 2013. "Competition and Efficiency in the Mexican Banking Sector," Working Papers 1329, BBVA Bank, Economic Research Department.
    3. Canan Yildirim, 2014. "Competition in Turkish Banking: Impacts of Restructuring and the Global Financial Crisis," The Developing Economies, Institute of Developing Economies, vol. 52(2), pages 95-124, June.
    4. Kazumine Kondo & David McMillan, 2015. "Cross-prefecture expansion of regional banks in Japan and its effects on lending-based income," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1017947-101, December.
    5. Mostak Ahamed, M., 2017. "Asset quality, non-interest income, and bank profitability: Evidence from Indian banks," Economic Modelling, Elsevier, vol. 63(C), pages 1-14.
    6. Abayomi Oredegbe, 2020. "Canadian Banking Industry Profitability: Exploring the Relevance of Two Competing Hypotheses," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 12(4), pages 1-67, April.
    7. Richard Oduro, 2024. "Impact of recapitalisation and dividend payout policies on financial sustainability of rural and community banks in Ghana," Future Business Journal, Springer, vol. 10(1), pages 1-18, December.
    8. Efthyvoulou, Georgios & Yildirim, Canan, 2014. "Market power in CEE banking sectors and the impact of the global financial crisis," Journal of Banking & Finance, Elsevier, vol. 40(C), pages 11-27.
    9. Kazumine Kondo, 2017. "Do credit associations compete with each other in Japanese regional lending markets?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(1), pages 195-210, January.
    10. Abdul Latif Alhassan & Michael Lawer Tetteh & Freeman Owusu Brobbey, 2016. "Market power, efficiency and bank profitability: evidence from Ghana," Economic Change and Restructuring, Springer, vol. 49(1), pages 71-93, February.
    11. Shijaku, Gerti, 2016. "Does concentration matter for bank stability - evidence from Albanian Banking System," MPRA Paper 79086, University Library of Munich, Germany.
    12. Kondo, Kazumine, 2014. "Do Credit Associations Compete with Each Other in Japanese Regional Lending Markets?," MPRA Paper 56669, University Library of Munich, Germany.
    13. Fukuyama, Hirofumi & Tsionas, Mike & Tan, Yong, 2024. "The impacts of innovation and trade openness on bank market power: The proposal of a minimum distance cost function approach and a causal structure analysis," European Journal of Operational Research, Elsevier, vol. 312(3), pages 1178-1194.
    14. Kondo, Kazumine, 2014. "Cross-Prefecture Expansion of Regional Banks in Japan and Its Effects on Lending-Based Income," MPRA Paper 52978, University Library of Munich, Germany.

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