Determining bank performance in emerging markets: the case of Jordan: competition, portfolio, and effeciciency

This study attempts to explain the banking performance in Jordan to draw out the implications of related theories and evidence for policy makers. Accordingly, they can influence the banking industry, which, in turn, impacts the economy overall. First, we investigate bank performance and the likely impact of market structures on such performance. The way in which market structure has an emotional impact on banks’ performance is vital for the reason that one objective of bank regulation is to ensure market competitiveness. Chapter three seek to examine two competing hypotheses, the SCP and the Efficient Market, for the Jordanian banking market using an unbalanced panel data set over the period 1991 to 2009. The results obtained support the SCP hypothesis as an explanation for market performance in Jordan. In chapter four we investigate the portfolio behaviour of Jordanian banks during 2002 to 2009 using monthly data. The model used is based on the portfolio choice theory, originated by Hicks (1935) and developed by Markowitz (1952) and Tobin (1958). Several nested models are developed to test the theoretical restrictions, including symmetry and homogeneity of the interest rate matrix. The empirical results, in general, clearly do not provide any support for interest rates which are important in determining the general composition of the portfolio holdings of Jordanian banks. The results show, however, that availability of funds is more important in determining the structure of these portfolios. In chapter five, the last empirical study, we examine the influence of efficiency estimates, which are derived from the Data Envelopment Analysis, on stock prices of listed banks in the Amman Stock Exchange (ASE). We test whether changes in banks’ efficiency scores have helped to explain the change in banks’ stock prices. The overall findings suggest that the share prices of Jordanian banks move according to the representative changes under the technical efficiency variables in the three presented panels