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The elusive effect of bank size on profits

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  • Meng-Wen Wu
  • Chung-Hua Shen

Abstract

This study investigates the determinants of bank profit while paying particular attention to the influence of market share on profit, referred as the market share effect. The research seeks to answer the question whether the market share effect is conditional upon four country institutional factors including concentration ratio, bank regulations, the government's governance and country wealth, and is thus better in explaining the mixed results in the literature. This study employs comprehensive data of 44 countries from 1998 to 2004. The results show that market share positively influences profit when no country institutional factors are considered, but further strengthened in countries that are characterized by high concentration ratios, high restrictions on bank activities in insurance and real estate, good investor protection and a strong rule of law.

Suggested Citation

  • Meng-Wen Wu & Chung-Hua Shen, 2009. "The elusive effect of bank size on profits," The Service Industries Journal, Taylor & Francis Journals, vol. 31(11), pages 1703-1724, December.
    • Handle: RePEc:taf:servic:v:31:y:2009:i:11:p:1703-1724
    DOI: 10.1080/02642060903580557
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    References listed on IDEAS

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    3. S. Claeys & R. Vander Vennet, 2003. "Determinants of bank interest margins in Central and Eastern Europe. Convergence to the West?," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 03/203, Ghent University, Faculty of Economics and Business Administration.
    4. Valentina Flamini & Miss Liliana B Schumacher & Mr. Calvin A McDonald, 2009. "The Determinants of Commercial Bank Profitability in Sub-Saharan Africa," IMF Working Papers 2009/015, International Monetary Fund.
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