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Punt, L., van Rooij, M. The Profit-Structure Relationship and Mergers in the European Banking Industry: An Empirical Assessment. Credit and Capital Markets – Kredit und Kapital, 36(1), 1-29. https://doi.org/10.3790/ccm.36.1.1
Punt, Leendert W. and van Rooij, Maarten C. J. "The Profit-Structure Relationship and Mergers in the European Banking Industry: An Empirical Assessment" Credit and Capital Markets – Kredit und Kapital 36.1, 2003, 1-29. https://doi.org/10.3790/ccm.36.1.1
Punt, Leendert W./van Rooij, Maarten C. J. (2003): The Profit-Structure Relationship and Mergers in the European Banking Industry: An Empirical Assessment, in: Credit and Capital Markets – Kredit und Kapital, vol. 36, iss. 1, 1-29, [online] https://doi.org/10.3790/ccm.36.1.1
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The Profit-Structure Relationship and Mergers in the European Banking Industry: An Empirical Assessment

Punt, Leendert W. | van Rooij, Maarten C. J.

Credit and Capital Markets – Kredit und Kapital, Vol. 36 (2003), Iss. 1 : pp. 1–29

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Additional Information

Article Details

Publisher Name
Duncker & Humblot
DOI
https://doi.org/10.3790/ccm.36.1.1
Language
Multiple languages
Pages
29

Author Details

Leendert W. Punt, Bussum

Maarten C. J. van Rooij, Amsterdam

References

  1. Aigner, D., K. Lovell & P. Schmidt, 1977, Formulation and Estimation of Stochastic Frontier Production Function Models, Journal of Econometrics, 6, pp. 21-37.  Google Scholar
  2. Akhavein, J. D., A. N. Berger & D. B. Humphrey, 1997, The Effects of Megamergers on Efficiency and Prices: Evidence from a bank profit function, Review of Industrial Organization, 12, pp. 95-139.  Google Scholar
  3. Allen, L. & A. Rai, 1996, Operational Efficiency in Banking: An international comparison, Journal of Banking and Finance, 29, pp. 655-672.  Google Scholar
  4. Altunbas, Y. & P. Molyneux, 1994, The Concentration-Performance Relationship in European Banking: A Note, Research Papers in Banking and Finance, RP 94/12, Institute of European Finance, Working paper.  Google Scholar
  5. Altunbas, Y., P. Molyneux & J. Thornton, 1997, Big-bank Mergers in Europe: an Analysis of the Cost Implications, Economica, 64, pp. 317-329.  Google Scholar

Abstract

Empirical research provides evidence of a relationship between market structure and profitability in the European banking sector. This paper tests several market-power and efficient-structure theories, which might explain the profitstructure relationship. These tests reveal that X-efficiency is the crucial factor underlying the profit-structure relationship because it enables banks to improve both profitability and market share. Bank mergers in recent years appear to have been successful because, on average, X-efficiency and profitability have improved after the consolidation. Moreover, there are no indications of unfavourable price setting behaviour as a result of increased market power. (JEL G14, G21, G34, L11)

Table of Contents

Section Title Page Action Price
Leendert W. Punt/Maarten C. J. van Rooij: The Profit-Structure Relationship and Mergers\rin the European Banking Industry:\rAn Empirical Assessment 1
I. Introduction 1
II. Possible Explanations of the Profit-Structure Relationship 3
Market-power Hypotheses 3
Efficient-structure Hypotheses 4
III. Testing Explanations for the Profit-Structure Relationship 5
1. Data Description and Sources 6
2. The Existence of a Profit-Structure Relationship for European Banks 8
3. Efficiency Measurement 9
Cost or Profit Function Approach 10
Bank Inputs and Outputs 10
Efficiency Frontier Technique 11
4. Testing Explanations for the Profit-Structure Relationship: Methodology 11
Testing the Efficient-Structure Hypotheses 11
Testing the Market-Power Hypotheses 12
5. Testing Explanations for the Profit-Structure Relationship: Empirical Results 13
6. Discussion 16
IV. Bank Mergers and the Profit-Structure Relationship 16
1. Merger Effects on Bank Performance 16
Methodology 18
Empirical Results 19
2. Merger Effects and Profit-Structure Hypotheses 21
Methodology 21
Empirical Results 23
3. Summary 23
V. Summary and Conclusions 24
References 26
Annex 27
Summary: The Profit-Structure Relationship and Mergers in the European Banking Industry: An Empirical Assessment 28
Zusammenfassung: Gewinnstrukturbeziehungen und Fusionen im europäischen Bankensektor: Eine empirische Untersuchung 29
Résumé: La relation entre le rendement et la structure de marché et les fusions dans l'industrie bancaire européenne: une évaluation empirique 29

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