In this study, there are various of market structures used as variable to investigate the relationship with bank's performance. However, two market structure will be selected which included concentration ratio and Herfindahl Index (HHI). These two variables have been used as measures of market structure of bank. There are several authors also applied concentration ratio as their measurement such as Goldberg and Rai (1996), Berger (1995), Short (1979), Molyneux (1992) and so forth.
According to Casu and Girardone (2006), concentration can helped to intensify market power. Therefore, if the concentration of bank increase will be improve the market power. Besides, higher prices were associated with market concentration. In the study of Casu and Girardone (2006), they employed the SCP approach as their model to investigate the market structure, conduct and performance of firms. However, structure of market which related to bank's performance will be employed in this study. Furthermore, there are several empirical evidence showed in previous studies found that there are positive relationship between structure and performance. According to Short (1979), Bourke (1989) and Molyneux (1992) stated that the relationship between structure and performance was positive. This means that the greater of the concentration ratio, the higher of the bank’s profit. The measurement of structure used in these three studies was concentration ratio and HERF, which is same with this study. Peltzman (1977) found that the concentration of market is positively correlated with industry profitability. Sathye (2005) stated that the relationship between market concentration and performance often found to be positive relationship which was explained by structure-conduct-performance (SCP) hypothesis and efficiency structure hypothesis. However, Smirlock (1985) stated that there is no relationship between concentration ratio and profitability in bank. In different study, there have different sum of shares of the largest banks …show more content…
Sathye (2005) also used Herfindahl Index as a measurement of market structure. Herfindahl Index is a summary measure of concentration of the market. The Herfindahl Index means the market share of total assets or deposits need to sum and squared.
Berger and Hannan (1997) study also stated the results of Herfindahl index is negative relationship with ROA and ROE. Based on Short (1979) stated that HERF was found to be more significant compare with the one, two and three-bank concentration ratios. Based on Rose and Fraser (1976) stated that the Herfindahl Index was found to be highly correlated with bank's profitability.
2.3.2 Measurement of Firm …show more content…
According to Shepherd (1972), the results showed that the variance of profit rates (rate of return) was negatively related to firm size in different industry. Apart from that, Hall and Weiss (1967) stated that all firm size which consists of total assets, total sales and number of employees have positive and significant relationship with return on assets. They interpret that large size of firms have more options than small firm and gain higher profit rates. Besides, the results of analysis of Dogan (2013) also stated that firm size and return on assets (profitability) is positive related. According to Sathye (2005), the bank size (log asset) are positively and significant with bank's profitability. This means that the size of banks led the bank obtained higher profits. The research conducted in Latin America also showed that average asset size of banks was positive relationship with bank's profitability, which are return on assets and return on equity (Chortareas, Garcia and Giradone,
According to Casu and Girardone (2006), concentration can helped to intensify market power. Therefore, if the concentration of bank increase will be improve the market power. Besides, higher prices were associated with market concentration. In the study of Casu and Girardone (2006), they employed the SCP approach as their model to investigate the market structure, conduct and performance of firms. However, structure of market which related to bank's performance will be employed in this study. Furthermore, there are several empirical evidence showed in previous studies found that there are positive relationship between structure and performance. According to Short (1979), Bourke (1989) and Molyneux (1992) stated that the relationship between structure and performance was positive. This means that the greater of the concentration ratio, the higher of the bank’s profit. The measurement of structure used in these three studies was concentration ratio and HERF, which is same with this study. Peltzman (1977) found that the concentration of market is positively correlated with industry profitability. Sathye (2005) stated that the relationship between market concentration and performance often found to be positive relationship which was explained by structure-conduct-performance (SCP) hypothesis and efficiency structure hypothesis. However, Smirlock (1985) stated that there is no relationship between concentration ratio and profitability in bank. In different study, there have different sum of shares of the largest banks …show more content…
Sathye (2005) also used Herfindahl Index as a measurement of market structure. Herfindahl Index is a summary measure of concentration of the market. The Herfindahl Index means the market share of total assets or deposits need to sum and squared.
Berger and Hannan (1997) study also stated the results of Herfindahl index is negative relationship with ROA and ROE. Based on Short (1979) stated that HERF was found to be more significant compare with the one, two and three-bank concentration ratios. Based on Rose and Fraser (1976) stated that the Herfindahl Index was found to be highly correlated with bank's profitability.
2.3.2 Measurement of Firm …show more content…
According to Shepherd (1972), the results showed that the variance of profit rates (rate of return) was negatively related to firm size in different industry. Apart from that, Hall and Weiss (1967) stated that all firm size which consists of total assets, total sales and number of employees have positive and significant relationship with return on assets. They interpret that large size of firms have more options than small firm and gain higher profit rates. Besides, the results of analysis of Dogan (2013) also stated that firm size and return on assets (profitability) is positive related. According to Sathye (2005), the bank size (log asset) are positively and significant with bank's profitability. This means that the size of banks led the bank obtained higher profits. The research conducted in Latin America also showed that average asset size of banks was positive relationship with bank's profitability, which are return on assets and return on equity (Chortareas, Garcia and Giradone,