Determinants of Bank‐Market Structure: Efficiency and Political Economy Variables

Abstract

This paper analyzes how bank efficiency and political economy variables influence bank‐market structure in 69 countries. Results for more than 2,500 banks over the 1996–2002 period indicate that the ability of the efficiency‐structure hypothesis to explain bank‐market structure varies across countries, depending on national political economy variables. Increased market monitoring and a better‐quality contracting environment amplify the positive influence of bank efficiency on market share and market concentration. Stricter bank entry requirements and more generous deposit insurance schemes, however, mitigate the influence of bank efficiency on market share and market concentration.

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