Testing for profitability and contestability in banking: evidence from Austria

The paper investigates the determinants of banking profitability and banking market conditions in Austria. We conduct a panel econometric analysis which allows for testing the hypotheses which have become the most prominent in the literature on bank profitability: the structure-conduct-performance h...

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Bibliographic Details
Published in:International review of applied economics 2008-09, Vol.22 (5), p.639-653
Main Author: Hahn, Franz R.
Format: Article
Language:English
Subjects:
Austria
Bank management
Bank operations
Banking
Banking industry
banking market structure
banking performance
banking profitability
Banking system
Econometrics
Financial performance
Hypotheses
Market structure
Panel data
panel econometrics
Profitability
Studies
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Summary:The paper investigates the determinants of banking profitability and banking market conditions in Austria. We conduct a panel econometric analysis which allows for testing the hypotheses which have become the most prominent in the literature on bank profitability: the structure-conduct-performance hypothesis, the efficient-structure hypothesis and the relative market-power hypothesis. Further, we test whether Austrian banking markets are, on average, contestable. A newly compiled dataset covering more than 700 Austrian banks ranging over the period from 1995 to 2002 is used to carry out these econometric analyses. The empirical findings support the view that the Austrian banks do exert, on average, some local market power. However, the gains in terms of excess profits are rather minor as a result of low deterrence powers of the incumbent banks.
ISSN:0269-2171
1465-3486
DOI:10.1080/02692170802287722