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BANK-SPECIFIC, INDUSTRY-SPECIFIC AND MACROECONOMIC DETERMINANTS OF BANK PROFITABILITY

Panayiotis P. Athanasoglou
Bank of Greece

Sophocles N. Brissimis
Bank of Greece and University of Piraeus

Matthaios D. Delis
Athens University of Economics and Business

ABSTRACT

The aim of this study is to examine the effect of bank-specific, industry-specific and macroeconomic determinants of bank profitability, using an empirical framework that incorporates the traditional Structure-Conduct-Performance (SCP) hypothesis. To account for profit persistence, we apply a GMM technique to a panel of Greek banks that covers the period 1985-2001. The estimation results show that profitability persists to a moderate extent, indicating that departures from perfectly competitive market structures may not be that large. All bank-specific determinants, with the exception of size, affect bank profitability significantly in the anticipated way. However, no evidence is found in support of the SCP hypothesis. Finally, the business cycle has a positive, albeit asymmetric effect on bank profitability, being significant only in the upper phase of the cycle.

Keywords: Bank profitability; business cycles and profitability; dynamic panel data model

JEL classification: G21; C23; L2

Acknowledgements
The authors would like to thank I. Asimakopoulos, E. Georgiou, H. Gibson, J. Goddard, P. Molyneux and G. Tavlas, as well as participants of the 3rd Annual Conference of the Hellenic Finance and Accounting Association (December 2004, Athens) for very helpful comments. The views expressed in this paper do not necessarily reflect those of the Bank of Greece.

Address for correspondence:

Panayiotis P. Athanasoglou,
Economic Research Department,
Bank of Greece, 21 E. Venizelos Ave.,
102 50 Athens, Greece,
Tel. +30210-320 2449
E-mail: pathanasoglou@bankofgreece.gr


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