Do Bank Profits Converge?

21 Pages Posted: 8 Mar 2013

See all articles by John Goddard

John Goddard

Bangor Business School

Hong Liu

Bangor Business School

Philip Molyneux

University of Sharjah - College of Business Administration

John O. S. Wilson

University of St. Andrews

Date Written: March 2013

Abstract

This paper examines the determinants and convergence of bank profitability in eight European Union member countries, between 1992 and 2007, using a dynamic panel model. Average profitability is higher for banks that are efficient and diversified, but lower for those that are more highly capitalised. There is evidence of persistence of excess profit from one year to the next. The persistence of profit was lower in 1999–2007 than it was in 1992–98 in all eight countries. This finding is consistent with the hypothesis of an increase in the intensity of bank competition as a result of an increase in the integration of EU financial markets following the introduction of the euro in 1999, and the implementation of the Financial Services Action Plan.

Keywords: banking, competition, convergence, dynamic panel estimation, integration, profitability, persistence

JEL Classification: G21, L11

Suggested Citation

Goddard, John and Liu, Hong and Molyneux, Philip and Wilson, John O. S., Do Bank Profits Converge? (March 2013). European Financial Management, Vol. 19, Issue 2, pp. 345-365, 2013. Available at SSRN: https://ssrn.com/abstract=2230255 or http://dx.doi.org/10.1111/j.1468-036X.2012.00578.x

John Goddard (Contact Author)

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

Hong Liu

Bangor Business School ( email )

Bangor Business School
College Road
Gwynedd LL57 2DG, Wales LL57 2DG
United Kingdom

Philip Molyneux

University of Sharjah - College of Business Administration ( email )

University City Road
Sharjah, 27272
United Arab Emirates

John O. S. Wilson

University of St. Andrews ( email )

North St
Saint Andrews, Fife KY16 9AJ
United Kingdom

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