The Persistence of Profits of Banks in Africa

Abstract

This paper applies Markov chain to analyse the extent and mobility of profit persistent, dynamic auto regressive model is used to assess the speed of convergence and the quantile regression technique is employed to examine the determinants of profit persistent of 330 banks across 29 African countries. The results show that a high level of profit persistence and relatively low speed of convergence provide no support for the hypothesis that there is lower persistent of profits in developing countries due to more intense competition. We also find that competition reduces the level and the speed of banks profits persistence and that, earnings management has a significant impact.

Keywords: banks, imperfect market, bank earnings, developing countries

JEL Classification: G21 D42 C33, N27