Market Power, Efficiency and Performance of Indonesian Banks
Fadilla Dwi Ardianty
Department of Management Faculty of Economics and Business Universitas Indonesia
This study aims to examine the existence of the two common hypothesis in banking industry, i.e: the Structure Conduct Performance (SCP) Hypothesis and the Efficient Structure (EFS) Hypothesis by analyzing the impact of market power and efficiency on performance of public banks in Indonesia for the period of 2003-2009. The estimation of efficiency is obtained by using two difference approaches: a parametric Stochastic Frontier Analysis (SFA) and non-parametric Data Envelopment Analysis (DEA). Findings of the study support the Structure Conduct Performance hypothesis, where market power is the most significant factor that influences banking performance. Furthermore, the results also support a quiet life hypothesis where the banks enjoy the advantages of market power in terms of foregone revenues or cost savings.
Number of Pages in PDF File: 15
Keywords: Structure Conduct Performance Hypothesis, Efficient Structure Hypothesis, Market power, Efficiency, Performance
JEL Classification: D4, G21, L11
Date posted: June 22, 2011 ; Last revised: February 16, 2013