Abstract
The purpose of this research is to examine the relationship between market structure and performance in thebanking sector using data from Pakistani commercial banks. Investigating the effect of changes in the marketstructure on profitability is based on the structure-conduct-performance (SCP) and efficient-structure (E-S)hypotheses. We have taken a sample of 20 scheduled commercial banks incorporated in Pakistan to examine theabove hypotheses, using the annual and pooled data for a period of 9 years from year 1996-2004. Threemeasures of bank’s performance are utilized: return on assets (ROA), return on capital (ROC) and return onequity (ROE). We have used concentration ratio (CR) to measure structure-conduct-performance (SCP)hypothesis and market share to measure efficient-structure (E-S) hypothesis. We have also used control variablesto capture market specific characteristics such as bank size, market size, risk to owners, liquidity measure,market risk, and market growth. Using regression analysis, we have found a positive relationship ofconcentration ratio (CR) with profitability. In light of these results, we conclude that there is a positiverelationship between profitability and concentration.The results of market share (MS) which is used for efficient structure (E-S) hypothesis explain a negativerelationship with profitability. The results of our analysis do not support the efficient structure (E-S) hypothesis.The empirical findings suggest that market concentration determines the profitability in Pakistani commercialbanks. Hence, we also conclude that there is a negative relationship between competition and profitability in thePakistani commercial banks. The leading banks are still enjoying the state of monopoly. But, the market trendshows that this state will not continue for a longer period as private commercial banks have started to competewith the existing top commercial banks.
Highlights
The Banking sector acts as the life-blood of modern trade and commerce to provide them with a major source of finance
To analyze the financial performance of Banks operating in Pakistan, we are starting with the financial background of the country, which was significantly altered in early 1970s with nationalization of domestic banks and expansion of public sector development finance institutions
We have used three measures of profitability (ROA, return on equity (ROE), and return on capital (ROC)) in the regression model and results of the model have been obtained through SPSS software
Summary
The Banking sector acts as the life-blood of modern trade and commerce to provide them with a major source of finance. To analyze the financial performance of Banks operating in Pakistan, we are starting with the financial background of the country, which was significantly altered in early 1970s with nationalization of domestic banks and expansion of public sector development finance institutions. The dominance of public sector in banking and non-bank financial institutions was responsible for financial inefficiency, deteriorating quality of assets and rising weakness of financial institutions. At the end of 1990, the share of public sector in the banking industry was almost 90 percent in total assets, while the rest belonged to foreign banks, as domestic private banks did not exist at that time. High shares existed for deposits, advances and investments
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
