Abstract
This study empirically examines the effect of global financial integration on the profitability, efficiency, stock premia, funding and market liquidity conditions of the South African banking industry. The thesis uses a different dataset and methodology in each respective empirical chapters. The first empirical chapter looks at the effect of global financial integration on South African Banks’ profitability by attempting to answer the question of whether domestic banks have competitive advantages1 over foreign banks when it comes to bank profitability. Using the return on assets as a measure of profitability, the study employs the Generalised Method of Moment (GMM) to evaluate the impact of bank-specific, industry-specific, and macroeconomic variables on bank performance. The results show that there is no significant difference in the profitability of foreign and domestic banks operating in South Africa. Thus nullifying the home field advantage hypothesis. That is, foreign and domestic banks operating in South Africa do not affect each other’s performance negatively. The second issue investigated in this thesis is the effect of global financial integration on the efficiency of the South African Banks. The thesis uses the Seemingly Unrelated Regression (SUR) method to analyse the translog of the cost function under specific restrictions. Based on monthly financial and economic data obtained from Bankscope, Quantec Easydata, and the South African Reserve Bank from 2013 to 2018 the study finds that although financial integration has increased costs in the banking industry, it has nonetheless reduced concentration in the banking market. It was also found that the level of bank efficiency in South Africa seems to follow a diminishing trend over time indicating that continued increase in the number of the banks is likely to be detrimental to the industry in the long-run...
Ph.D. (Economics)