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Banking Sector Performance in Latin America: Market Power versus Efficiency

Chortareas, GE and Garza-Garcia, JG and Girardone, C (2011) 'Banking Sector Performance in Latin America: Market Power versus Efficiency.' Review of Development Economics, 15 (2). 307 - 325. ISSN 1363-6669

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Since the mid-1990s the banking sector in the Latin American emerging markets has experienced profound changes due to financial liberalization, a significant increase in foreign investments, and greater merger activities often occurring following financial crises. The wave of consolidation and the rapid increase in market concentration that took place in most countries has generated concerns about the rise in banks' market power and its potential effects on consumers. This paper advances the existing literature by testing the market power (Structure-Conduct-Performance and Relative Market Power) and efficient structure (X- and scale efficiency) hypotheses for a sample of over 2500 bank observations in nine Latin American countries over 1997-2005. We use the Data Envelopment Analysis technique to obtain reliable efficiency measures. We produce evidence supporting the efficient structure hypotheses. The findings are particularly robust for the largest banking markets in the region, namely Brazil, Argentina, and Chile. Finally, capital ratios and bank size seem to be among the most important factors in explaining higher than normal profits for Latin American banks. © 2011 Blackwell Publishing Ltd.

Item Type: Article
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Claudia Girardone
Date Deposited: 21 Nov 2011 09:52
Last Modified: 23 Jan 2019 00:15

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