Market structure, strategic choices and bank performance: a path model

Abstract

Purpose– The purpose of this paper is to develop and test a conceptual model of bank performance.Design/methodology/approach– The papers build a system of causal relationships between market structure, strategic choice and bank performance using the path analysis method. The sample includes commercial banks from 11 emerging countries.Findings– Results show that market structure has a positive and indirect effect on bank performance, and that market share has a positive and direct effect on bank performance. Strategic variables related to risk taking and diversification affect directly and indirectly bank performance. The indirect effect occurs via market share. The results suggest that the mediating role played by the strategic choice in the relationship between market structure and performance is complete.Originality/value– The contribution of this paper is threefold. The first one is to develop a conceptual model to explain bank performance. The model includes simultaneously direct and indirect causal relationships between market structure, strategic choice and bank performance. The second one is the use of the path analysis method to estimate the direct and indirect relationships. The third one is related to the sample including commercial banks in emerging markets.