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Foreign banks, profits, market power and efficiency in PICs: some evidence from Fiji

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  • Parmendra Sharma
  • Neelesh Gounder
  • Dong Xiang

Abstract

Studies on bank profitability vis-�-vis market power and efficiency span a number of years, many countries, regions and methods. Yet, the experiences of the Pacific's small states -- where foreign banks are widespread and bank profits relatively high -- remain unknown, leaving policy-makers ill-informed regarding relevant policy development. This study fills a huge gap in literature by providing some evidence on the issue in a Pacific Island context. Two market power hypotheses -- the structure-conduct-performance (SCP) and the relative market power (RMP) hypotheses together with two measures of the efficient structure (ES) hypothesis -- X and scale efficiencies are estimated. The nonparametric data envelopment analysis (DEA) technique is used to estimate efficiency scores for banks in Fiji over the period 2000 to 2010 and the dynamic GMM to estimate the relationships between market power and efficiency vis-�-vis profitability. Results show that the RMP and ES hypotheses might hold, but not the SCP. Profits appear to persist over time. Policy implications are considerable including that any suggestions to limit further mergers and acquisitions of banks in the region may have to be properly debated.

Suggested Citation

  • Parmendra Sharma & Neelesh Gounder & Dong Xiang, 2013. "Foreign banks, profits, market power and efficiency in PICs: some evidence from Fiji," Applied Financial Economics, Taylor & Francis Journals, vol. 23(22), pages 1733-1744, November.
    • Handle: RePEc:taf:apfiec:v:23:y:2013:i:22:p:1733-1744
    DOI: 10.1080/09603107.2013.848026
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    References listed on IDEAS

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    1. Mueller,Dennis C., 2009. "Profits in the Long Run," Cambridge Books, Cambridge University Press, number 9780521101592, January.
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    Cited by:

    1. Tu D. Q. Le & Dat T. Nguyen, 2020. "Capital Structure and Bank Profitability in Vietnam: A Quantile Regression Approach," JRFM, MDPI, vol. 13(8), pages 1-17, August.
    2. Laila Al-Harthy & Revenio Jalagat, Jr. & Karima Sayari, 2021. "Determinants of bank profitability during oil price decline: Evidence from selected banks in Oman," International Journal of Research in Business and Social Science (2147-4478), Center for the Strategic Studies in Business and Finance, vol. 10(8), pages 200-217, December.
    3. Adeabah, David & Andoh, Charles, 2019. "Market power, efficiency and welfare performance of banks: evidence from the Ghanaian banking industry," EconStor Preprints 192967, ZBW - Leibniz Information Centre for Economics.
    4. Huan Huu Nguyen & Thanh Phuc Nguyen & Anh Nguyen Tram Tran, 2022. "Impacts of monetary policy transmission on bank performance and risk in the Vietnamese market: Does the Covid-19 pandemic matter?," Cogent Business & Management, Taylor & Francis Journals, vol. 9(1), pages 2094591-209, December.
    5. David Adeabah & Charles Andoh, 2020. "Cost efficiency and welfare performance of banks: evidence from an emerging economy," International Journal of Managerial Finance, Emerald Group Publishing Limited, vol. 16(5), pages 549-574, July.

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