School of Management, University of Southampton, SO17 IBJ, United Kingdom; Department of Accounting, University of Ghana Business School, PO Box LG 78, Legon, Accra, Ghana
Amidu, M., School of Management, University of Southampton, SO17 IBJ, United Kingdom, Department of Accounting, University of Ghana Business School, PO Box LG 78, Legon, Accra, Ghana; Wolfe, S., School of Management, University of Southampton, SO17 IBJ, United Kingdom
This paper investigates the implications of market power and funding strategies for bank-interest margins, using a sample of 978 banks in 55 emerging and developing countries over an eight-year period, 2000-2007. We provide additional insight by examining the complex interlocking of three key variables that are important for regulators: the degree of market power, funding sources and bank performance. The results show that market power increases when banks use internal funding to diversify into non-interest income-generating activities. We also find that the high net-interest margins of banks in emerging and developing countries can be explained by the degree of market power, credit risk, and implicit interest payments. In addition, our results suggest that interest margins among banks with market power are significantly more sensitive to internally generated funds than they are to deposit and wholesale funding. © 2013 Taylor & Francis.