Testing the ‘Quiet Life’ Hypothesis in the Italian Banking Industry
Paolo CoccoreseDepartment of Economics and Statistics, CELPE and CSEF, University of Salerno, Via Ponte don Melillo, 84084 Fisciano (SA), Italy. E-mail: [email protected]Alfonso PellecchiaDepartment of Economics and Statistics, University of Salerno, Via Ponte don Melillo, 84084 Fisciano (SA), Italy
2010en
ABI
Abstract
In this paper we test the so‐called ‘quiet life’ hypothesis (QLH), according to which firms with market power are less efficient. Using data on the Italian banking industry for the period 1992–2007, we apply a two‐step procedure. First we estimate bank‐level cost efficiency scores and Lerner indices. Then we use the estimated market power measures, as well as a vector of control variables, to explain cost efficiency. Our empirical evidence supports the QLH, although the impact of market power on efficiency is not particularly remarkable in magnitude.
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