The financial competition, concentration and structure of financial performance nexus in the financial sector of Oman

This study aimed to measure the impact of financial competition, as measured by the Lerner index (LRI) and the Panzar-Rosse model (PRM), and concentration, as measured by the Herfindahl-Hirschman index (HHI), on structure of financial performance indicators in 24 firms in the financial sector of Oman for the period of 2008-2018. The main findings were consistent and confirmed by estimated generalised least squares (EGLS), feasible generalised least squares (FGLS) and dynamic and system generalised method of moments (GMM) estimators. Regarding financial competition, the LRI had a significant negative impact on all of the structure of financial performance indicators. In addition, the PRM had a significant positive impact on all of the structure of financial performance indicators except liquidity and leverage. Regarding concentration, the HHI had a significant positive impact on all of the structure of financial performance indicators except liquidity and profitability. The study implications can help decision makers develop a regulatory framework for banks/firms that enables the adoption of a mixed perspective that focuses on an incentive-compatible environment in the financial sector and tries to fine-tune the market concentration and the degree of competition.