The Effect of Market Structure on Banks’ Profitability and Stability: Evidence from ASEAN-5 Countries

Does market structure matter for Islamic rural banks' profitability?

“…Therefore, instead of structure conduct performance hypothesis, our results confirm the relative market power hypothesis. Our findings support the existing empirical studies such as Mirzaei et al (2013) for commercial banks in 17 European countries from 1999 to 2008 and (Hamid, 2017) for commercial banks in ASEAN-5 countries encompassing, Malaysia, Singapore, Indonesia, Philippines, and Thailand from 2001 to 2012.…”

“…Our study clearly indicates that the lagged has a positive sign and statistically significant, implying that Islamic rural banks' profitability in the previous period greatly contribute to current profitability. These results imply that profitability is permanent to some extent because of entry and exists barriers, imperfect market competition, asymmetric information as well as economic upturn and downturn (Hamid, 2017). Consequently, by applying static panel regression, the biased and inconsistent estimators exist.…”

“…Accordingly, bank capitalizes its market power to determine the premium price and generate supernormal profits. Several studies such as Mirzaei et al (2013) and Hamid (2017) support the RMP theory.…”

“…This study examines the impact of market structure on the profitability of Islamic rural banks in the provinces of Yogyakarta and Central Java. The model used in this study follows previous research such as Smirlock (1985), Hamid (2017), and Al Arif & Awwaliyah (2019). The profitability model of Islamic rural banks is a panel regression model as follows:…”

“…Economic growth at province level represents the macroeconomic condition at province level. The good macroeconomic condition encourages Islamic rural banks to earn more profit so it is linked to a positive relationship economic growth and profitability (Hamid, 2017).…”