The Price-concentration relationship in the banking industry in Kenya
Zawadi, Emma Awich
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The objective of the study is to examine market structure performance hypothesis in banking industry in Kenya. Specifically, the structure-conduct-performance (SCP) and market efficiency hypotheses were examined to determine how market concentration and efficiency affect bank performance in Kenya. The study used secondary data the Return on assets, return on equity, market share, total bank assets, capital to asset lending ratio, lending to deposit ratio, lending to asset ratio of 43 commercial banks operating from 2012-2016.The proxies used to measure bank performance were Return on Assets and Return on equity while market concentration and market share were used as proxies for market structure. Market concentration was measured using the Herfindahl-Hirschman Index, while market share was used as a proxy for efficiency. The study used the generalized least squares regression method. The findings of the study reveal that there is no strong evidence to support the SCP hypothesis in the Kenyan banking industry as the coefficient for market concentration measured by the HHl index was found to be insufficient to explain market performance. On the other hand, market share was seen to have a significant impact on bank performance indicating that more efficient banks with higher market share, earn more profits.