The Structure - Conduct - Performance Paradigm in the European Union Banking
In this study we investigate the structure and performance at the European Union (EU) banking market as a whole between 2008 and 2015. The structure of this banking market was measured by two main concentration indices: the Herfindahl-Hirschman Index (HHI) and the Concentration Ratio for 5 largest banks (CR5). The results show a stable development in concentration until 2012, and a significant decrease in 2012. Since 2013, the level of concentration increased, reaching its historical maximum at the end of 2014, when the increase in market concentration was reflecting primarily the decline in the number of credit institutions. The performance was measured by means of profitability indicators: the Return on Assets (ROA) and the Return on Equity (ROE). Since 2008, the development of the market in question was affected by the financial crisis, which resulted in low profitability till the end of 2013. In more recent years the profitability in European banking market slightly increased. The purpose of this paper was to examine the relations between structure and performance. We tried to test the presence of structure-conduct- performance (SCP) paradigm in the EU conditions. The presence of this paradigm was verified using the Granger causality test for panel data. The results of our analysis show that under the studied conditions only the one-way relationship running from banking sector performance to banking market concentration was approved. The findings do not confirm the presence of the SCP paradigm, but are in line with the quiet life hypothesis, thus indicating there is a negative relationship between concentration and performance at European banking market. (original abstract)
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