Market Power, Efficiency and Performance of Indonesian Banks

15 Pages Posted: 22 Jun 2011 Last revised: 16 Feb 2013

Fadilla Dwi Ardianty

Universitas Indonesia

Viverita D.

Department of Management Faculty of Economics and Business Universitas Indonesia

Date Written: 2011

Abstract

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.

Keywords: Structure Conduct Performance Hypothesis, Efficient Structure Hypothesis, Market power, Efficiency, Performance

JEL Classification: D4, G21, L11

Suggested Citation

Ardianty, Fadilla Dwi and D., Viverita, Market Power, Efficiency and Performance of Indonesian Banks (2011). Available at SSRN: https://ssrn.com/abstract=1869978 or http://dx.doi.org/10.2139/ssrn.1869978

Fadilla Dwi Ardianty

Universitas Indonesia ( email )

Kampus Baru
Depok, West Java 16424
Indonesia

Viverita D. (Contact Author)

Department of Management Faculty of Economics and Business Universitas Indonesia ( email )

Depok, West Java 16424
Indonesia
+62217270164 (Phone)
+622178849155 (Fax)

Paper statistics

Downloads
225
Rank
110,428
Abstract Views
966