Market Power and Cost Efficiency in the African Banking Industry

Forthcoming, Journal of Economic Studies

EXCAS Working Paper - WP/19/080

24 Pages Posted: 12 Nov 2019

See all articles by Simplice Asongu

Simplice Asongu

African Governance and Development Institute

Rexon Tayong Nting

University of Wales System - University of Wales Trinity Saint David (UWTSD)

Joseph Nnanna

Development Bank of Nigeria

Date Written: January 2019

Abstract

Purpose - In this study, we test the so-called ‘Quiet Life Hypothesis’ (QLH) which postulates that banks with market power are less efficient.

Design/methodology/approach - We employ instrumental variable Ordinary Least Squares, Fixed Effects, Tobit and Logistic regressions. The empirical evidence is based on a panel of 162 banks consisting of 42 African countries for the period 2001-2011. There is a two-step analytical procedure. First, we estimate Lerner indices and cost efficiency scores. Then, we regress cost efficiency scores on Lerner indices contingent on bank characteristics, market features and the unobserved heterogeneity.

Findings - The empirical evidence does not support the QLH because market power is positively associated with cost efficiency.

Originality/value - Owing to data availability constraints, this is one of the few studies to test the QLH in African banking.

Keywords: Finance; Savings banks; Competition; Efficiency; Quiet life hypothesis

JEL Classification: E42, E52, E58, G21, G28

Suggested Citation

Asongu, Simplice and Nting, Rexon Tayong and Nnanna, Joseph, Market Power and Cost Efficiency in the African Banking Industry (January 2019). Forthcoming, Journal of Economic Studies. Available at SSRN: https://ssrn.com/abstract=3479776 or http://dx.doi.org/10.2139/ssrn.3479776

Simplice Asongu (Contact Author)

African Governance and Development Institute ( email )

P.O. Box 8413
Yaoundé, 8413
Cameroon

Rexon Tayong Nting

University of Wales System - University of Wales Trinity Saint David (UWTSD) ( email )

United Kingdom

Joseph Nnanna

Development Bank of Nigeria ( email )

Maitama, Abuja
Nigeria

Register to save articles to
your library

Register

Paper statistics

Downloads
4
Abstract Views
78
PlumX Metrics