Testing the Quiet Life Hypothesis in the African Banking Industry

Journal of Industry, Competition and Trade,19(1), pp 69-82 (2019)

20 Pages Posted: 24 May 2018 Last revised: 10 Mar 2019

See all articles by Simplice Asongu

Simplice Asongu

African Governance and Development Institute

Nicholas Odhiambo

University of South Africa - Department of Economics

Date Written: January 7, 2018

Abstract

The Quiet Life Hypothesis (QLH) is the pursuit of less efficiency by firms. In this study, we assess if powerful banks in the African banking industry are increasing financial access. The QLH is therefore consistent with the pursuit of financial intermediation inefficiency by large banks. To investigate the hypothesis, we first estimate the Lerner index. Then, using Two Stage Least Squares, we assess the effect of the Lerner index on financial access proxied by loan price and loan quantity. The empirical evidence is based on a panel of 162 banks from 42 African countries for the period 2001-2011. The findings support the QLH, although quiet life is driven by the below-median Lerner index sub-sample. Policy implications are discussed.

Keywords: Financial access; Bank performance; Africa

JEL Classification: D40; G20; G29; L10; O55

Suggested Citation

Asongu, Simplice and Odhiambo, Nicholas, Testing the Quiet Life Hypothesis in the African Banking Industry (January 7, 2018). Journal of Industry, Competition and Trade,19(1), pp 69-82 (2019). Available at SSRN: https://ssrn.com/abstract=3175048 or http://dx.doi.org/10.2139/ssrn.3175048

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

Nicholas Odhiambo

University of South Africa - Department of Economics ( email )

PO Box 392
Pretoria, 0003
South Africa

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