Market Power Theory Research Articles

Research on the Key Factors for a Successful Merger and Acquisition

M&A is an important activity of corporates in today's competitive business environment. Previous researches on the influencing factors of M&A were mainly based on the theory of synergy effect, market power theory, economies of scale theory and so on. Moreover, there are no unified conclusions. Starting from HSBC's M&A of AXA Singapore, this paper studies the influencing factors of M&A through literature research and case analysis. In the end, three main influencing factors were derived. One is synergy, represented by Haier Group merging Red Star Electric Appliance Company and Citibank merging Travelers Group. The second is technology, the representative cases are Cisco acquisition of IMImobile and Salesforce acquisition of Slack Technologies. The third is market share, and corresponding cases are J&R Express' acquisition of Best Express and LVMH's acquisition of Tiffany. Enterprises can obtain synergies, innovate with technology, expand market share through M&A. Therefore, they can obtain more profits, and support the healthy development of enterprises. Finally, this paper suggests that enterprises start from various factors such as the market environment and their own conditions to make M&A decisions and promote the benign development of enterprises.

Earnings growth, marketability and the role of Islamic financial literacy and inclusion in Indonesia

PurposeThis paper aims to describe earnings growth and marketability generated by Islamic banks in Indonesia and to find the effects of a moderated mediation model on the nexus between Islamic financial inclusion and literacy, marketability and earnings growth.Design/methodology/approachThe sample of this research was Islamic commercial banks in Indonesia listed on the Financial Services Authority and Bank Indonesia using time-series data of financial statements from 2014 to 2021. This research was designed using the model of moderated mediation.FindingsEarnings growth experienced by Islamic banks in Indonesia has a positive average value followed by a positive marketability. Based on the significance test, the level of earnings growth is positively affected by marketability. The result indicates that the higher the marketability, the higher the earnings growth of Islamic banks. In a moderated mediation model, the result has found a positive effect on the nexus between inclusion supported by the role of literacy, marketability and earnings growth. It indicates that Islamic financial inclusion moderated purely by the role of literacy enhances Islamic banking marketability so that earnings growth continuously increases.Practical implicationsThe increase of literacy is an empirically proven way to strengthen market power, so the finding obtained in this research can be feedback from the scheme made by the Indonesian government in supporting the Islamic business and for the corporate area being eager to grow greater and faster in competing and equalizing its power in the banking industry. In addition, this research implies that other countries continuously promote and increase the role of Islamic financial literacy and inclusion to enhance market power and increase the growth in Islamic banking.Originality/valueThis research extends the limited scholarly work on the role of Islamic financial literacy and inclusion using a different design from prior studies. The framework of market power theory has been elaborated to find the effect of Islamic financial inclusion supported by the role of literacy on earnings growth through marketability. This research is a trailblazer in testing the nexus model between variables allowing the path analysis using the moderated mediation model.

Effect of Institutional Ownership on Financial Performance in Kenya: Moderated Mediation Role of Capital Structure and Corporate Diversification

Purpose: The study aimed at examining the moderating effect of capital structure in the indirect relationship between institutional ownership and financial performance through corporate diversification of listed firms at the Nairobi securities in Kenya. Approach/Methodology/Design: Post positivist research paradigm and explanatory research design guided the study in which 35 listed firms from 2003 to 2017 were included. Findings: There was a significant interaction effect between capital structure and institutional ownership on financial performance through corporate diversification. The study extended market power theory by examining institutional ownership structure given that corporate diversification is not only a source of power to drive a firm’s performance. Practical Implications: Institutional investors provide equity capital that is collaborated with the firm’s capital structure. As a result, there exist sufficient resources to take on diversification strategy despite this translating to a smaller amount in terms of financial performance. The study had implications on Market timing theory which opines that market timing is a ‘first order determinant’ to aid in selecting a suitable form of financing given debt and equity. Ideally, the preferences of different owners in the firm would affect the choice between debt and equity financing. Originality/value: Investigation of the interaction effect between capital structure and institutional ownership on financial performance through corporate diversification.

Predicting Sustainable Bank Performance in Nigeria Using Composite Financial Index

This study seeks to predict sustainable Bank performance in Nigeria using Composite Financial Index. Composite Financial Index (CFI) is a single indicator of overall institutional financial health based on performance in four principal domains of finance; sufficiency and flexibility of financial resources, management of debt, the performance of assets, and results from operations. Each domain is measured by a core financial ratio. The main objective of the study was to find out the level of banks’ performance in Nigeria using Composite Financial Index. The study adopted Market Power Theory and the Efficiency Structure Hypothesis. The paper specified various ways to achieve its objectives, such that objective one was achieved by compiling all the variables that make up the CFI, and all these variables would be identified and compared with the contents of financial reports of the banks. The paper in its finding shows some weaknesses in the application of individual financial ratios in measuring performance and predicted that Composite Financial Index would better explain the true performance level of a bank rather than an individual financial ratio. The paper recommends that Nigeria banks should adopt the use of CFI in measuring performance and Analysts who desire to use the conventional ratio analysis should also apply the CFI as a further confirmation of the results of the conventional ratio analysis so that the public and Nigeria banks would not experience what happened in the sector in 2009.

Internal Auditors’ Independence and Financial Performance of Listed Banks at the Nairobi Securities Exchange

The internal audit function plays a significant role in the financial performance of banks as it tasked with not only carrying out an oversight function but also providing assurance to their stakeholders. It is also required of an internal auditor to undertake assessment on the status of internal controls as well provide recommendations on the same albeit independently. However, these functions are adversely influenced by interference from top management leading to a significant negative impact on the financial performance of banks. Specifically this research based its investigation on the influence of internal auditors’ independence on financial performance of listed banks at the Nairobi Securities Exchange (NSE). The study is pivoted on two theories; Agency Theory and Market Power Theory. This research was guided by Descriptive survey research design. The study’s target population constituted of 76 Audit Managers and Internal auditors. A sample size of 76 final sampled subjects was used and respondents selected using Census sampling technique. A questionnaire was prepared and used for primary data collection from the target final sampled subjects. Descriptive statistics was employed in the analysis of quantitative data while narratives guided by themes under research were employed in the reporting of qualitative data. A Chi Sqaure was employed to test hypothesis. The research established that limited or minimal internal auditors’ independence negatively influenced financial performance of listed banks at the NSE. In particular, the study established that the existence of an internal audit budget as a measure of improving internal auditors’ independence influenced the financial performance of commercial banks listed in NSE. Additionally, this research established that recognized the need to enhance of Internal audit as a training ground for managers meaning most of the study’s final subjects appreciated the need to gain experience prior to been promoted to an audit manager position for excellent work performance. The scholarly investigation concluded that internal audit budget that determines internal auditors’ independence has a significant influence on the financial performance of listed banks. The research recommends that as a measure of enhancing internal auditor independence, commercial dependable banks listed at the Nairobi Securities Exchange (NSE) should invest financial resources in the form of a budget to their internal audit departments.

Impact of Bank Regulatory Change and Bank Specific Factors Upon Off-Balance-Sheet Activities Across Commercial Banks in South Asia

In recent decades, off-balance sheet activities have emerged as an innovation in banking and finance as it is the easiest source of additional fee income that is beyond a bank’s balance sheet activities that avoids regulatory costs, and so they are increasingly popular in banking industries around the world. This paper presents a discussion of the determinants of using off-balance sheet activity in commercial banks in South Asia. The paper also presents an in-depth insight of different theoretical justifications, and empirical literature answers the whys and wherefores of off-balance sheet usage in commercial banks of south Asia. The conceptual model considers the impact of capital size, profitability, loan, credit risk, market concentration, capital adequacy, reserve requirement, real GDP, interest rate spread and inflation on off-balance sheet activities of banks. The Fixed effect and Arellano-Bond GMM method are used on the balance panel of 81 banks to achieve the research objectives of the current study. The results of the bank-specific factors on the off-balance sheet activities (OBSA) support the Market Power Theory. However, the positive and significant relationship between loan ratio and OBSA also supports the market portfolio theory, which argues that the increasing loans offer a continuous risk and can enhance credit risk. Therefore, banks must diversify their portfolios. The positive relationship between the reserve ratio and OBSA provides support for the regulatory and tax hypothesis.

INFLUENCE OF DIVERSIFICATION STRATEGIES ON COMPETITIVE ADVANTAGE OF COMMERCIAL BANKS IN KENYA

Purpose: This study examined the influence of diversification strategies on competitive advantage of commercial banks in Kenya by utilizing theoretical approaches of Market Power Theory, Portfolio Theory, Transaction Cost Theory, Resource Based View Theory and Diffusion of Innovation Theory. The specific objectives of the study included: to establish the influence of asset diversification strategy, technological diversification strategy, portfolio diversification strategy and revenue diversification strategy on competitive advantage of commercial banks in Kenya.Methodology: The stud adopted a descriptive research design. The target population of the study comprised of all the 43 commercial banks in Kenya. However, the study focused on the 39 commercial banks which were operational at the time of the study. The target respondents were the director of the corporate section, the head of strategy department and the strategy manager from each of the 39 commercial banks who made a total of 117 respondents. The study used a census method on all the 39 commercial banks. The study mainly relied on primary data. The primary data was collected using questionnaires which comprised open and closed- ended questions. Data was quantitatively analyzed using (SPSS V20) for both descriptive and inferential statistics.Results: The study findings showed that all the four variables, that is asset diversification strategy, technological diversification strategy, portfolio diversification strategy and revenue diversification strategy have a positive and significant influence on competitive advantage of commercial banks in Kenya.Recommendations: The study recommends that commercial banks should aim to increase their asset diversification strategies. The study also recommends that commercial banks should also aim to increase their technological diversification strategies. The study also recommends that commercial banks should also invest more resources in expanding their revenue generation activities. The study finally recommends that commercial banks should also invest more resources in expanding their portfolios as to diversify their risks.

Market power and performance: An Islamic banking perspective

This study aims to test the theories of market power and its role in interpreting the performance of Islamic banks in the GCC countries. Based on data from 22 Islamic banks for the period 2012-2017, using standard models, market power theories were unable to explain the returns of Islamic banks in the Gulf. Accordingly, these results deny the existence of an impact of monopoly in the structure of the Islamic banking sector in the performance of this sector, as well as the impact of traditional efficiency in its performance.

Effect of Bank Diversification on the Financial Distress of Commercial Banks Listed at the Nairobi Securities Exchange, Kenya

Due to the dynamic environment, banks are always striving to achieve a competitive advantage. In this sense, they have identified different strategies for diversification in order to survive. The purpose of this study was to determine the effect of bank diversification on financial distress of commercial banks listed in the Nairobi Securities Exchange. The specific objective of the study was to determine the effect of geographical and asset base diversification on the financial distress of the listed commercial banks in the NSE. The theories that guided this study included market power theory, resource dependency theory and resource based view theory. Exploratory research design was used. The research targeted ten listed commercial banks in the NSE. This study used panel data of a ten years period (2006-2015) from the audited and published financial statements of commercial banks. Descriptive and inferential statistics was employed for data analysis. This study established that geographical diversification was positively and significantly correlated with financial distress (b=0.0065; p<0.05). The finding also showed that assets base diversification was positively and significantly correlated with financial distress (b=0.0079; p<0.05). This study will contribute new dimensions and perspectives to generate policy solutions to the management and the banking industry stakeholders. The new empirical evidence will form the basis for further studies with the aim of addressing financial distress through diversification. The study recommends that banks should adopt a moderate geographical strategy of diversification to enhance financial health of the banks.

Market power versus efficient-structure in Islamic banking industry: evidence from selected GCC countries

The study aims at testing market power theories and their role in explaining Islamic banks performance in Gulf Cooperation Council GCC. Depending on the data of 22 Islamic banks in the period of (2008-2013). Using measuring models, market power theories could not explain GCC Islamic banks returns, as these results showed that there is no evidence of monopoly in Islamic banks market structure that would affect its performance. There is an effect for traditional efficiency in its performance. This sector is characterised by the presence of high competition and diffused market shares. There should be a future research about the role of economic efficiency theories in explaining GCC Islamic banks returns.

Banks Performance in Ghana: Trends and Determinants

The paper examines determinants of banks performance in the Ghanaian banking industry for the period 2000-2010 using trend graphs, equations and panel data estimation techniques. Three different measures of performance are employed and the results show a negative trend in banks performance within the study period. This observation is worrying due to the crucial role banks play in the economy. On the determinants, market share of loan is found to be positively related to performance, confirming the relative market power hypothesis. The results further reveal that banks in Ghana pass on their inefficiencies to their customers by raising their lending rates and lowering their deposit rates. The findings have some policy implications: banks should reduce the level of administrative overheads instead of passing their inefficiencies to their customers, as this has the effect of reducing the amount of credit customers would take for economic activities. Keywords : Structure-Conduct-Performance Hypothesis, Market Power Theory, Return on Assets, Return on Equity, Net Interest Margin

Towards a normative model for managing container shipping supply chains

This paper aims to propose a normative model and derive hypotheses for managing container shipping supply chains, with the goal to better synchronise the processes and the partners involved in practice. Formulation of the research approach follows a scientific and systematic research design, particularly conceptual theory building. A more integrated supply chain approach is useful in exploring ways to increase the competitiveness of container shipping. Total cost concept, economies of scope, demand complementarity, market power theories and obstacles to integration are applicable in explaining the evolutions in container shipping in the supply chain context. The study leads to better conceptualisation and contributes to the scant literature in an important and emerging research topic. It amalgamates, enhances and simulates multidisciplinary supply chain research. This paper contributes by developing an original normative model for managing container shipping supply chains which can serve practical and research purposes in planning, execution, monitoring and benchmarking.

How Does Price and Sales Correlation Affect Price Maintenance?

Based on the relation between prices and sales, this study investigates how manufactures coordinate advertising and resale price maintenance. A real options analysis shows that market power theory and product information theory can lead to divergent results. Advertising is likely to influence resale price maintenance through the market power effect and the product information effect. When the market power effect is dominant, advertising will discourage manufacturers from imposing resale price maintenance; the opposite is true when the product information effect is dominant. Whether advertising induces the adoption of resale price maintenance depends on how advertising impacts the relation between prices and demand quantities. This study provides implications for marketing managers and antitrust policy makers. Marketing managers can coordinate their strategies of advertising and resale price maintenance based on real options models in this study. For the antitrust policy makers, the real options model indicates the per se rule against resale price maintenance should be reconsidered.

Market microstructure: A survey of microfoundations, empirical results, and policy implications

We survey the literature analyzing the price formation and trading process, and the consequences of market organization for price discovery and welfare. We offer a synthesis of the theoretical microfoundations and empirical approaches. Within this framework, we confront adverse selection, inventory costs and market power theories to the evidence on transactions costs and price impact. Building on these results, we proceed to an equilibrium analysis of policy issues. We review the extent to which market frictions can be mitigated by such features of market design as the degree of transparency, the use of call auctions, the pricing grid, and the regulation of competition between liquidity suppliers or exchanges.

Analisa Kolusi Industri Manufaktur Indonesia Tahun 1993-2000

Despite its shortcomings, many industrial economists believe that coxentration index is a powerful tool to use in order to analyze the level of competition within a market. This is due to the fact that concentration index influences greatly market performance. Nonetheless, there are two opposing views on how does concentration index actually influences the market (Donsimoni, 1984). On one hand, the relationship between competition and market performance, and perfect competition with market performance on the other hand, have been discussed since the 18th century, however, a common ground between those two opposing theories have relatively been left untouched by analysis (Bothwell, 1984). Even so, in the last three decades, many researches have been done based on those two opposing theories.Through the use of panel regression in this research, the degree of collusion in the Indonesian manufacturing industry can be found. Although the degree of collusion is small, nevertheless, there exists a positive relationship between the degree of collusion and the level of concentration. This proves that the first theory, Market Power Theory, applies in this case. By knowing that this is the theory which applies in the manufacturing industry in Indonesia, the policy implemented must be adjusted accordingly. Policy implemented by the government for the manufacturing industry should take into account the possibility that collusion exists within certain industries which contain a small amount oflarge firms that control the majority ofthe market share.

Vertical integration and consumer welfare in the cable industry

Two economic theories compete with respect to the impact and effect of vertical integration in the cable industry. One theory of efficiency suggests that vertical integration has resulted in better performance or economic value in terms of the cable subscription fee and the accompanying diversity. Contrarily, the theory of market power argues that vertical integration has led to diseconomies and inefficiencies for cable firms and reduced program diversity. The present study tested the two competing theories by comparing the consumer welfare of integrated multiple system operators (MSOs) with that of nonintegrated MSOs in two dimensions: subscription fees and program diversity. It was discovered that in general the consumer enjoys greater diversity and lower prices from integrated MSOs, but these effects were confounded by differences in system size between the two groups. This study confirms neither the efficiency theory nor the market power theory. Rather, we suggest a diminishing effects model in which consumer welfare is enhanced as vertical integration increases up to an optimal threshold, after which consumer welfare declines.

Competition as a Moderator of the Effect of Advertising on Sales

The author investigates the impact of competition on the sales response function. In particular, the influence of advertising on consumers’ price sensitivity (elasticity) is explored. Two opposing schools of thought, information theory and market power theory, explain how advertising changes consumer price elasticity. These two theories provide conflicting predictions of the direction of change in price sensitivity. The author proposes and estimates a model specifying conditions under which one of the two theories would apply. The impact of advertising on other parameters of the sales response function also is examined. The crucial determinant of the sign of these coefficients is competitive reactivity. An operational definition of this construct is proposed, and the hypotheses are tested empirically by an analysis of airline industry data.