Banking Sector Performance in Latin America: Market Power Versus Efficiency

19 Pages Posted: 14 Apr 2011  

Georgios E. Chortareas

University of Athens - Faculty of Economics; University of Essex - Department of Accounting, Finance & Management; King's College London

Jesus G. Garza-Garcia

affiliation not provided to SSRN

Claudia Girardone

University of Essex - Essex Business School

Date Written: May 2011

Abstract

Since the mid-1990s the banking sector in the Latin American emerging markets has experienced profound changes due to financial liberalization, a significant increase in foreign investments, and greater merger activities often occurring following financial crises. The wave of consolidation and the rapid increase in market concentration that took place in most countries has generated concerns about the rise in banks' market power and its potential effects on consumers. This paper advances the existing literature by testing the market power (Structure-Conduct-Performance and Relative Market Power) and efficient structure (X- and scale-efficiency) hypotheses for a sample of over 2500 bank observations in nine Latin American countries over 1997-2005. We use the Data Envelopment Analysis technique to obtain reliable efficiency measures. We produce evidence supporting the efficient structure hypotheses. The findings are particularly robust for the largest banking markets in the region, namely Brazil, Argentina, and Chile. Finally, capital ratios and bank size seem to be among the most important factors in explaining higher than normal profits for Latin American banks.

Suggested Citation

Chortareas, Georgios E. and Garza-Garcia, Jesus G. and Girardone, Claudia, Banking Sector Performance in Latin America: Market Power Versus Efficiency (May 2011). Review of Development Economics, Vol. 15, Issue 2, pp. 307-325, 2011. Available at SSRN: https://ssrn.com/abstract=1809374 or http://dx.doi.org/10.1111/j.1467-9361.2011.00610.x

Georgios Chortareas (Contact Author)

University of Athens - Faculty of Economics ( email )

8 Pesmazoglou street
GR-10559 Athens
Greece
+(30) 210 3689805 (Phone)
+(30) 210 3689810 (Fax)

University of Essex - Department of Accounting, Finance & Management ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom

King's College London ( email )

Strand
London, England WC2R 2LS
United Kingdom

Jesus G. Garza-Garcia

affiliation not provided to SSRN

No Address Available

Claudia Girardone

University of Essex - Essex Business School ( email )

Wivenhoe Park
Colchester CO4 3SQ
United Kingdom
+44 1206874156 (Phone)
+44 1206873429 (Fax)

HOME PAGE: http://www.essex.ac.uk/ebs/staff/profile.aspx?ID=1045

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