Strategic Groups and Banks' Performance

Financial Theory and Practice, 2009, vol. 33, issue 2, pages 153-186

34 Pages Posted: 13 Feb 2014

See all articles by Grzegorz Halaj

Grzegorz Halaj

National Bank of Poland

Dawid Żochowski

European Central Bank

Date Written: February 26, 2009

Abstract

The theory of strategic groups predicts the existence of stable groups of companies that adopt similar business strategies. The theory also predicts that groups will differ in performance and in their reaction to external shocks. We use cluster analysis to identify strategic groups in the Polish banking sector. We find stable groups in the Polish banking sector constituted after the year 2000 following the major privatisation and ownership changes connected with transition to the mostly-privately-owned banking sector in the late 90s. Using panel regression methods we show that the allocation of banks to groups is statistically significant in explaining the profitability of banks. Thus, breaking down the banks into strategic groups and allowing for the different reaction of the groups to external shocks helps in a more accurate explanation of profits of the banking sector as a whole. Therefore, a more precise ex ante assessment of the loss absorption capabilities of banks is possible, which is crucial for an analysis of banking sector stability. However, we did not find evidence of the usefulness of strategic groups in explaining the quality of bank portfolios as measured by irregular loans over total loans, which is a more direct way to assess risks to financial stability.

Keywords: strategic groups, financial stability, clustering, Ward algorithm, panel regression

JEL Classification: C49, G21, L1

Suggested Citation

Halaj, Grzegorz and Żochowski, Dawid, Strategic Groups and Banks' Performance (February 26, 2009). Financial Theory and Practice, 2009, vol. 33, issue 2, pages 153-186. Available at SSRN: https://ssrn.com/abstract=2393936 or http://dx.doi.org/10.2139/ssrn.2393936

Grzegorz Halaj

National Bank of Poland ( email )

00-919 Warsaw
Poland

Dawid Żochowski (Contact Author)

European Central Bank ( email )

Sonnemannstrasse 20
Frankfurt am Main, 60314
Germany

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