Strategic groups in Polish banking sector and financial stability

Hałaj, Grzegorz and Żochowski, Dawid (2006): Strategic groups in Polish banking sector and financial stability.

Abstract

The paper provides results of research concerning identification of strategic groups in the Polish banking sector and tests of the usefulness of these groups in the assessment of financial stability. The theory of strategic groups predicts the existence of stable groups of companies, stemming from the strategy adopted by them. The theory also predicts that groups differ in performance. Our empirical research, preceded by a review of relevant literature, has been carried out on the basis of a cluster analysis with the use of Ward’s algorithm that optimises allocation of banks into groups. We have identified strategic groups in the Polish banking sector, sustained over time after the year 2000. We have also observed statistically significant differences in performance between banks belonging to different groups, and we have demonstrated further that modelling of profitability within groups with the use of regression yields more precise estimates of parameters than in the case of estimation of a model for the whole sector. Thus, breaking down the whole banking sector into strategic groups creates a possibility to forecast the banking sector earnings in a more precise way, i.e. to provide a more precise ex ante assessment of stability of the financial system.

• Item Type: MPRA Paper
• Language: English
• Keywords: Strategic groups; financial stability; clustering; Ward algorithm
• Subjects: C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C49 - Other; L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages

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