The Impact of Industry Structure on Performance and Testing the ‘quiet life' Hypothesis in the Ethiopian Banking Sector

Abstract

The quantitative test on the relationship between industry concentration and performance has rejected the structure-conduct-performance (SCP) relationship. The statistical test has explored a negative and significant relationship in the profit models which is unlike the premise of the SCP that claims for a positive and significant effect of industry concentration on performances. In addition, the competitiveness level in the Ethiopian banking system appear to be unlike the one suggested in the SCP framework which posits for a limited competition in a market system characterized by high concentration. Most importantly the study found that scale efficiency of banks remained a strong determinant of performances. The result along with the rejection of a quiet life scenario in the Ethiopian banking industry confirms that efficiency appears to be a relevant determinant of bank performance. There is an observed scale impact on performances supporting the scale efficiency version of the efficiency hypothesis.