Profit Persistence: is There A Conglomerate Effect? The Case of Banking and Insurance in Morocco
Keywords:
Profit persistence, Diversified conglomerates, Dynamic hypothesis of the competitive environment, Structure-conduct-performance
Abstract
This paper analyses profit persistence and its determinants in Morocco's banking and insurance sectors. The solid and increasing interdependencies between both actors are becoming a matter of concern for the regulatory authorities, as they threaten the country's financial stability. Using both static and dynamic hypotheses of the competitive environment model, we study the determinants of profit persistence in eight banks and eight insurance companies for 13 years, using a random-effects panel data model. While previous articles studied banks and insurers separately, we fill the gap in the literature by exploring the profit persistence as a result of their increasing capitalistic interdependence. Our results show a very low-profit persistence level, which signals a competitive financial sector. The main determinants of this profit persistence are diversification, efficiency, size, solvency, risk, and entry barriers. However, we find no evidence of any conglomerate effect, eliminating any synergy premium through cross participation between banks and insurance companies.
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References
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8. Bourke, P. (1989) 'Concentration and other Determinants of Bank Profitability in Europe, North America and Australia', Journal of Banking & Finance, 13(1), pp. 65–79.
9. Bouzgarrou, H., Sassi, S. and Rouissi Béjaoui, R. (2010) ‘L’analyse des déterminants de la rentabilité des banques françaises Comparaison entre banques domestiques et banques étrangères’, in Conférence Euro-Africaine en finance et Economies. Université Paris 1 Panthéon-Sorbonne - France, pp. 1–32.
10. Cable, J. R. and Mueller, D. C. (2008) 'Testing for Persistence of Profits' Differences Across Firms', International Journal of the Economics of Business, 15(2), pp. 201–228.
11. Carlton, D. W. and Perloff, J. M. (2005) Modern Industrial Organization, 4th Edition. Pearson.
12. CCSRS (2018) Rapport sur la Stabilité Financière. BAM-ACAPS-AMMC.
13. Chiang, C.-C. (2019) 'Does Having an Affiliated Bank Improve Life Insurer Performance in a Turbulent Market?', Journal of Risk and Insurance, pp. 1–38. doi: 10.1111/jori.12286.
14. Chronopoulos, D. Liu, H. McMillan, F. Wilson, J. (2015) 'The dynamics of US bank profitability', European Journal of Finance, 21(5), pp. 426–443. doi: 10.1080/1351847X.2013.838184.
15. Demsetz, H. (1973) 'Industry structure, market rivalry, and public policy', Journal of Law and Economics, 16(1), pp. 1–9.
16. Dietrich, A. and Wanzenried, G. (2011) 'Determinants of bank profitability before and during the crisis: Evidence from Switzerland', Journal of International Financial Markets, Institutions and Money, 21(3), pp. 307–327. doi: 10.1016/j.intfin.2010.11.002.
17. Doyran, M. A., Santamaria, Z. R. and Santamaria, Z. R. (2019) 'A comparative analysis of banking institutions : examining quiet life', Managerial Finance, 45(6), pp. 726–743. doi: 10.1108/MF-09-2018-0415.
18. Fontes, J. C., Panaretou, A. and Peasnell, K. V. (2018) 'The Impact of Fair Value Measurement for Bank Assets on Information Asymmetry and the Moderating Effect of Own Credit Risk Gains and Losses', The Accounting Review, 93(6), pp. 127–147.
19. Goddard, J. Liu, H. Molyneux, P. Wilson, J. (2011) 'The persistence of bank profit', Journal of Banking and Finance. Elsevier BVBV, 35(11), pp. 2881–2890. doi: 10.1016/j.jbankfin.2011.03.015.
20. Goddard, J. Liu, H. Molyneux, P. Wilson, J. (2013) 'Do Bank Profits Converge ?', European Financial Management, 69(2), pp. 345–365. doi: 10.1111/j.1468-036X.2010.00578.x.
21. Gugler, K. and Peev, E. (2018) 'The persistence of profits in banking : an international comparison', Applied Economics. Routledge, 50(55), pp. 5996–6009.
22. Gupta, N. and Mahakud, J. (2020) 'Ownership, bank size, capitalization and bank performance: Evidence from India', Cogent Economics and Finance. Cogent OA, 8(1). doi: 10.1080/23322039.2020.1808282.
23. Jaisinghani, D., Tandon, D. and Batra, D. (2015) 'Profit persistence in emerging markets: Empirical evidence from Indian banking sector', International Journal of Business Competition and Growth, 4(1), pp. 79–97.
24. Kanga, D., Murinde, V. and Soumaré, I. (2020) 'Capital, risk and profitability of WAEMU banks: Does bank ownership matter?', Journal of Banking and Finance, 114. doi: 10.1016/j.jbankfin.2020.105814.
25. Kaserer, C. and Klein, C. (2016) Systemic Risk in Financial Markets: How Systemically Important Are Insurers?, Ssrn Electronic Journal. doi: 10.2139/ssrn.2786947.
26. Laeven, L. and Levine, R. (2007) 'Is there a Diversification Discount in Financial Conglomerates?', Journal of Financial Economics, 85(2), pp. 331–367.
27. Lin, F., Chen, Y. and Lo, F. (2014) 'The persistence of economic profit', International Entrepreneurship and Management Journal, 10(4), pp. 767–780. doi: 10.1007/s11365-013-0248-5.
28. Loulmet, L. (1998) ‘L’évolution maîtrisée du gouvernement d’entreprise au Japon face à la concurrence bancaire et aux investisseurs institutionnels’, Revue d’économie financière, 49, pp. 243–261.
29. Makadok, R. (2011) 'The four theories of profit and their joint effects', Journal of Management, 37(5), pp. 1316–1334. doi: 10.1177/0149206310385697.
30. Maudos, J. and Fernández de Guevara, J. (2004) 'Factors explaining the interest margin in the banking sectors of the European Union', Journal of Banking and Finance, 28(9), pp. 2259–2281. doi: 10.1016/j.jbankfin.2003.09.004.
31. Molyneux, P. and Thornton, J. (1992) 'Determinants of European profitability : A note bank', Journal of Banking and Finance, 16, pp. 1173–1178.
32. Mueller, D. C. (1977) 'The Persistence of Profits Above the Norm', Economica, 44(176), pp. 369–380.
33. Mueller, D. C. (1990) The Dynamics of Company Profits : an International comparison. Cambridge University Press.
34. Obamuyi, T. M. (2013) 'Determinants of banks' profitabilty in a developing economy: evidence from Nigeria', Organizations and markets in emerging economies, 4(2), pp. 97–111.
35. Pervan, M., Pelivan, I. and Arneri, J. (2015) 'Profit persistence and determinants of bank profitability in Croatia', Economic Research-Ekonomska Istraživanja, 28(1), pp. 284–298.
36. Porter, M. E. (2008) Competitive Advantage: Creating and Sustaining Superior Performance. Ed. Simon and Schuster.
37. Rahman, H., Yousaf, M. W. and Tabassum, N. (2020) 'Bank-Specific and Macroeconomic Determinants of Profitability : A Revisit of Pakistani Banking Sector under Dynamic Panel Data Approach', International journal of financial studies, 8(3), p. 42.
38. Rioja, F. and Valev, N. (2014) 'Stock markets , banks and the sources of economic growth in low and high income countries', Journal of Economics and Finance, 38(2), pp. 302–320. doi: 10.1007/s12197-011-9218-3.
39. Salike, N. and Ao, B. (2018) 'Determinants of bank's profitability: role of poor asset quality in Asia', China Finance Review International, 8(2).
40. Sarpong-kumankoma, E. Abor, J. Aboagye, A. Amidu, M. (2018) 'Differences in bank profit persistence in Sub-Saharan Africa persistence', African Journal of Economic and Management Studies, 9(4), pp. 512–522.
41. Sinha, P. and Sharma, S. (2015) 'Determinants of bank profits and its persistence in Indian Banks : a study in a dynamic panel data framework', International Journal of System Assurance Engineering and Management. Springer India, 7(1), pp. 35–46. doi: 10.1007/s13198-015-0388-9.
42. Tamirat, A., Trujillo-barrera, A. and Pennings, J. M. E. (2018) ‘Do Profit Rates Converge ? Evidence on the Persistence of Farm Profit in the Long-run', in Agricultural and Applied Economics Association annual meeting. Washington, D.CD.C.
43. Tan, Y. (2017) 'The impacts of competition and shadow banking on profitability: Evidence from the Chinese banking industry', North American Journal of Economics and Finance. Elsevier Inc., 42, pp. 89–106.
44. Twinoburyo, E. N. and Odhiambo, N. M. (2018) 'Monetary policy and economic growth: A review of international literature', Journal of Central Banking Theory and Practice. doi: 10.2478/jcbtp-2018-0015.
45. Yong, T. (2016) 'The impacts of risk and competition on bank profitability in China', Journal of International Financial Markets, Institutions and Money, 40(1), pp. 85–110.
46. Yong, T. and Floros, C. (2012) 'Bank profitability and inflation: the case of China', Journal of Economic Studies, 39(6), pp. 675–696.
47. Yong, T., Floros, C. and Anchor, J. (2017) 'The profitability of Chinese banks: impacts of risk, competition and efficiency', Review of Accounting and Finance, 16(1), pp. 86–105.
48. Jiang, Y. (2018) Bank Competition, Earnings Management and Profit Persistence. PhD Thesis, University of Glasgow.
2. Albulescu Tiberiu, C. (2015) 'Banks' profitability and financial soundness indicators: A Macro-level investigation in emerging countries', in 2nd Global Conference on Business, Economics, Management and Tourism, 30-31 October 2014, Prague, Czech Republic. Elsevier BVBV, pp. 203–209. doi: 10.1016/S2212-5671(15)00551-1.
3. Amidu, M. and Harvey, S. K. (2015) 'The persistence of profits of banks in Africa', Review of Quantitative Finance and Accounting, 47(1), pp. 83–108. doi: 10.1007/s11156-014-0495-8.
4. Barney, J. B. (2001) 'Resource-based theories of competitive advantage: A ten-year retrospective on the resource-based view', Journal of Management, 27, pp. 643–650.
5. Barros, C. P., Ferreira, C. and Williams, J. (2007) 'Analysing the determinants of performance of the best and worst European banks: a mixed logit approach', Journal of Banking & Finance, 31(7), pp. 2189–2203.
6. Batten, J. and Vo, X. V. (2019) 'Determinants of Bank Profitability—Evidence from Vietnam', Emerging Markets Finance and Trade. Routledge, 55(6), pp. 1417–1428. doi: 10.1080/1540496X.2018.1524326.
7. Berger, A. N. (1995) 'The Profit-structure Relationship in Banking – Tests of Market Power and Efficient Structure Hypothesis', Journal of Money, Credit, and Banking, 27(2), pp. 404–431.
8. Bourke, P. (1989) 'Concentration and other Determinants of Bank Profitability in Europe, North America and Australia', Journal of Banking & Finance, 13(1), pp. 65–79.
9. Bouzgarrou, H., Sassi, S. and Rouissi Béjaoui, R. (2010) ‘L’analyse des déterminants de la rentabilité des banques françaises Comparaison entre banques domestiques et banques étrangères’, in Conférence Euro-Africaine en finance et Economies. Université Paris 1 Panthéon-Sorbonne - France, pp. 1–32.
10. Cable, J. R. and Mueller, D. C. (2008) 'Testing for Persistence of Profits' Differences Across Firms', International Journal of the Economics of Business, 15(2), pp. 201–228.
11. Carlton, D. W. and Perloff, J. M. (2005) Modern Industrial Organization, 4th Edition. Pearson.
12. CCSRS (2018) Rapport sur la Stabilité Financière. BAM-ACAPS-AMMC.
13. Chiang, C.-C. (2019) 'Does Having an Affiliated Bank Improve Life Insurer Performance in a Turbulent Market?', Journal of Risk and Insurance, pp. 1–38. doi: 10.1111/jori.12286.
14. Chronopoulos, D. Liu, H. McMillan, F. Wilson, J. (2015) 'The dynamics of US bank profitability', European Journal of Finance, 21(5), pp. 426–443. doi: 10.1080/1351847X.2013.838184.
15. Demsetz, H. (1973) 'Industry structure, market rivalry, and public policy', Journal of Law and Economics, 16(1), pp. 1–9.
16. Dietrich, A. and Wanzenried, G. (2011) 'Determinants of bank profitability before and during the crisis: Evidence from Switzerland', Journal of International Financial Markets, Institutions and Money, 21(3), pp. 307–327. doi: 10.1016/j.intfin.2010.11.002.
17. Doyran, M. A., Santamaria, Z. R. and Santamaria, Z. R. (2019) 'A comparative analysis of banking institutions : examining quiet life', Managerial Finance, 45(6), pp. 726–743. doi: 10.1108/MF-09-2018-0415.
18. Fontes, J. C., Panaretou, A. and Peasnell, K. V. (2018) 'The Impact of Fair Value Measurement for Bank Assets on Information Asymmetry and the Moderating Effect of Own Credit Risk Gains and Losses', The Accounting Review, 93(6), pp. 127–147.
19. Goddard, J. Liu, H. Molyneux, P. Wilson, J. (2011) 'The persistence of bank profit', Journal of Banking and Finance. Elsevier BVBV, 35(11), pp. 2881–2890. doi: 10.1016/j.jbankfin.2011.03.015.
20. Goddard, J. Liu, H. Molyneux, P. Wilson, J. (2013) 'Do Bank Profits Converge ?', European Financial Management, 69(2), pp. 345–365. doi: 10.1111/j.1468-036X.2010.00578.x.
21. Gugler, K. and Peev, E. (2018) 'The persistence of profits in banking : an international comparison', Applied Economics. Routledge, 50(55), pp. 5996–6009.
22. Gupta, N. and Mahakud, J. (2020) 'Ownership, bank size, capitalization and bank performance: Evidence from India', Cogent Economics and Finance. Cogent OA, 8(1). doi: 10.1080/23322039.2020.1808282.
23. Jaisinghani, D., Tandon, D. and Batra, D. (2015) 'Profit persistence in emerging markets: Empirical evidence from Indian banking sector', International Journal of Business Competition and Growth, 4(1), pp. 79–97.
24. Kanga, D., Murinde, V. and Soumaré, I. (2020) 'Capital, risk and profitability of WAEMU banks: Does bank ownership matter?', Journal of Banking and Finance, 114. doi: 10.1016/j.jbankfin.2020.105814.
25. Kaserer, C. and Klein, C. (2016) Systemic Risk in Financial Markets: How Systemically Important Are Insurers?, Ssrn Electronic Journal. doi: 10.2139/ssrn.2786947.
26. Laeven, L. and Levine, R. (2007) 'Is there a Diversification Discount in Financial Conglomerates?', Journal of Financial Economics, 85(2), pp. 331–367.
27. Lin, F., Chen, Y. and Lo, F. (2014) 'The persistence of economic profit', International Entrepreneurship and Management Journal, 10(4), pp. 767–780. doi: 10.1007/s11365-013-0248-5.
28. Loulmet, L. (1998) ‘L’évolution maîtrisée du gouvernement d’entreprise au Japon face à la concurrence bancaire et aux investisseurs institutionnels’, Revue d’économie financière, 49, pp. 243–261.
29. Makadok, R. (2011) 'The four theories of profit and their joint effects', Journal of Management, 37(5), pp. 1316–1334. doi: 10.1177/0149206310385697.
30. Maudos, J. and Fernández de Guevara, J. (2004) 'Factors explaining the interest margin in the banking sectors of the European Union', Journal of Banking and Finance, 28(9), pp. 2259–2281. doi: 10.1016/j.jbankfin.2003.09.004.
31. Molyneux, P. and Thornton, J. (1992) 'Determinants of European profitability : A note bank', Journal of Banking and Finance, 16, pp. 1173–1178.
32. Mueller, D. C. (1977) 'The Persistence of Profits Above the Norm', Economica, 44(176), pp. 369–380.
33. Mueller, D. C. (1990) The Dynamics of Company Profits : an International comparison. Cambridge University Press.
34. Obamuyi, T. M. (2013) 'Determinants of banks' profitabilty in a developing economy: evidence from Nigeria', Organizations and markets in emerging economies, 4(2), pp. 97–111.
35. Pervan, M., Pelivan, I. and Arneri, J. (2015) 'Profit persistence and determinants of bank profitability in Croatia', Economic Research-Ekonomska Istraživanja, 28(1), pp. 284–298.
36. Porter, M. E. (2008) Competitive Advantage: Creating and Sustaining Superior Performance. Ed. Simon and Schuster.
37. Rahman, H., Yousaf, M. W. and Tabassum, N. (2020) 'Bank-Specific and Macroeconomic Determinants of Profitability : A Revisit of Pakistani Banking Sector under Dynamic Panel Data Approach', International journal of financial studies, 8(3), p. 42.
38. Rioja, F. and Valev, N. (2014) 'Stock markets , banks and the sources of economic growth in low and high income countries', Journal of Economics and Finance, 38(2), pp. 302–320. doi: 10.1007/s12197-011-9218-3.
39. Salike, N. and Ao, B. (2018) 'Determinants of bank's profitability: role of poor asset quality in Asia', China Finance Review International, 8(2).
40. Sarpong-kumankoma, E. Abor, J. Aboagye, A. Amidu, M. (2018) 'Differences in bank profit persistence in Sub-Saharan Africa persistence', African Journal of Economic and Management Studies, 9(4), pp. 512–522.
41. Sinha, P. and Sharma, S. (2015) 'Determinants of bank profits and its persistence in Indian Banks : a study in a dynamic panel data framework', International Journal of System Assurance Engineering and Management. Springer India, 7(1), pp. 35–46. doi: 10.1007/s13198-015-0388-9.
42. Tamirat, A., Trujillo-barrera, A. and Pennings, J. M. E. (2018) ‘Do Profit Rates Converge ? Evidence on the Persistence of Farm Profit in the Long-run', in Agricultural and Applied Economics Association annual meeting. Washington, D.CD.C.
43. Tan, Y. (2017) 'The impacts of competition and shadow banking on profitability: Evidence from the Chinese banking industry', North American Journal of Economics and Finance. Elsevier Inc., 42, pp. 89–106.
44. Twinoburyo, E. N. and Odhiambo, N. M. (2018) 'Monetary policy and economic growth: A review of international literature', Journal of Central Banking Theory and Practice. doi: 10.2478/jcbtp-2018-0015.
45. Yong, T. (2016) 'The impacts of risk and competition on bank profitability in China', Journal of International Financial Markets, Institutions and Money, 40(1), pp. 85–110.
46. Yong, T. and Floros, C. (2012) 'Bank profitability and inflation: the case of China', Journal of Economic Studies, 39(6), pp. 675–696.
47. Yong, T., Floros, C. and Anchor, J. (2017) 'The profitability of Chinese banks: impacts of risk, competition and efficiency', Review of Accounting and Finance, 16(1), pp. 86–105.
48. Jiang, Y. (2018) Bank Competition, Earnings Management and Profit Persistence. PhD Thesis, University of Glasgow.
Published
2022-05-31
How to Cite
Adel, N., & Meknassi, S. (2022). Profit Persistence: is There A Conglomerate Effect? The Case of Banking and Insurance in Morocco. European Scientific Journal, ESJ, 18(15), 106. https://doi.org/10.19044/esj.2022.v18n15p106
Section
ESJ Social Sciences
Copyright (c) 2022 Nabil Adel, Siham Meknassi
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
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