Market Concentration and Market Share’s Effects on the Financial Performance of Jordanian Banks

Abstract

This study explores market concentration and market share and their impact on both short and long-term financial performance of Jordanian banks. Autoregressive Distributed Lag (ARDL) method was used to analyse annual bank data from 2006-2020 to illustrate the impact of market concentration and market share on the financial performance of the Arab Bank and the Housing Bank for Trade and Finance. Results found market concentration’s negative and significant impact on the short and long-term rate of return on assets for both the Arab Bank and the Housing Bank for Trade and Finance. This contradicts with the Structure-Conduct-Performance hypothesis and therefore excludes collusive behavior between banks mostly concentrated in the Jordanian banking market. The market share of deposits also has a short and long term positive and significant impact of on the rate of return on assets for both the Arab Bank and Housing Bank for Trade and Finance coinciding with the Traditional Efficiency hypothesis in the Jordanian banking market. We recommend inviting Jordanian banks to study their environmental influences, and raise employee efficiency and technological adaptability to competitively participate in the larger banking industry, thus improving their own performance.