Recomendaciones para un Programa en Inglés en la ETSI AGRÓNOMOS 113

Broadly speaking, there are three approaches or methods to conducting research: qualitative methods, quantitative methods and mixed methods (Creswell, 2003; Creswell & Plano-Clark, 2007; Teddlie & Tashakkori, 2009). As this research study involves collecting and analyzing both quantitative and qualitative data, a mixed methods approach is implemented to address the research questions. The explanation for the approach selection is as follows:

5.4.1. Mixed Research

A mixed method study involves the collection or analysis of both quantitative and/or qualitative data in a single study in which the data are collected concurrently or sequentially, are given a priority, and involve the integration of the data at one or more stages in the research process (Gutmann & Hanson, 2002). In other words, the approach helps the researcher answer questions that cannot be answered using only qualitative or qualitative methods alone. Mixed methods provide a more complete picture by noting trends and generalizations as well as in-depth knowledge of participants’ perspectives.

In this study, a quantitative approach is applied using a panel data of the banking sector in order to test the concentration- performance relationship as well as the link among other internal and external factors with bank performances. The findings on the quantitative research are supplemented by a qualitative approach aimed to drive an in- depth explanation on the quantitative result. Each phase of the stated approach is explained hereunder:

106 5.4.1.1. Quantitative Phase

Aliaga and Gunderson (2000), describes quantitative study as a research approach explaining a phenomena by collecting numerical data that are analyzed using statistical approaches. It is an approach in which the investigator employs strategies of inquiry such as experiments and surveys and collects data on predetermined instruments that yield statistical data (Creswell, 2003). The greatest strength associated with quantitative research is that its methods produce reliable and quantifiable data that can potentially be generalized to a large population (Marshall, 1996). In addition, it is suitable to test and validate already constructed theories about how and why phenomena occur through testing hypotheses that are constructed before the data are collected.

In the study, the quantitative method is applied to confirm or refute the central research question and other separate specific research questions as follows:

The central research question reads as, ‘ how do industry concentration and performance

are related in the Ethiopian Banking system?’

From the nature of study and previous literature works, it is obvious that the central research question demands a quantitative answer. The SCP approach uses a model that examines whether a highly concentrated market causes collusive behavior among large banks and whether it improves market performance. Usually, literature applied a multiple linear regression model to test the SCP hypotheses. The regression model which started with a simple regression approach to establish a relationship with concentration and profitability has subsequently improved to consider several variables. An improvement in such regard is the approach used by Simrlock (1985) who re- modified the model to incorporate both market share and concentration measures so as to test the relationship between concentration and profitability. In order to interpret the findings correctly, Smirlock (1985) introduced an additional regressor, however, still interpreting and calculating managerial and scale efficiencies appear a complicated task (Berger 1991). For instance, the relationship between market share and profitability was

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considered as an indication in favor of the scale-efficiency hypothesis by some scholars (Simrlock, 1985) and x-efficiency by others (Berger, 1991).

The recent research trend is widely following the Berger and Hannan (1991) model who tackled the above problem by explicitly incorporating two efficiency indicators, which measure the X-efficiency and scale efficiency of banks, as explanatory variables in the regression equations. In addition, two market structure indicators, which are proxied by measures of industry concentration and market share, are included in their model.

This study also follows the approach of Berger and Hannan (1991) to test the central research question. Therefore, conclusions drawn from the analysis of quantitative data indicate which of the two contrasting theories better represent the phenomenon in the Ethiopian Banking sector. In other words, the quantitative approach provides a response on whether better performance of banks is associated with market power or is related to superior performance of banks with high market share.

There are also sub research questions that are examined through the quantitative component of this thesis, which is specified as follows:

• RQ1: How do bank efficiency relate to bank performance?

• RQ2: Is there efficiency variation among banks operating in Ethiopia?

As explained above, the Berger and Hannan (1991) is a result of interpretation difference on the effect of concentration on performance. The model provides explicit definition on and measures for the X-efficiency and scale efficiency of banks. This study applies the Data Envelopment Analysis to estimate the score of banks in each efficiency categories. The estimated efficiency scores are then used as regressors in the multiple linear regression models in order to observe the relationship between efficiency and performances.

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To address the questions related to the efficiency variance among banks, a quantitative approach utilizing various descriptive and inferential statistical tools is also established. Relying on the scores of the DEA, both parametric (analysis of variance and t-test) and

non-parametric (Mann-Whithey[Wilcoxon Rank-Sum] and Kolgomorov –Smirnov tests

are used to test whether there is an efficiency variation among banks having differing ownership structure. Moreover, descriptive statistics such as, mean, maximum and minimum efficiency scores are determined in order to investigate the efficiency level and variation among banks.

As set in the conceptual framework, the link between performance and the identified control variables is examined through a quantitative research approach. The research questions related to the control variables integrated in the study comprise:

• RQ3: How do bank specific factors relate to bank performance?

• RQ4: How do external (sector and macroeconomic) factors relate to bank performance?

• RQ5: What is the impact of regulation on bank performances?

The variables in each sub questions are either measured based on the extent literature or originated from the banking practices and regulatory framework instituted in the Ethiopian banking system.

In sum, the quantitative approach appears suitable to provide answers to the above mentioned central and sub research questions of this study which are basically quantitative. Moreover, as it has been justified in the research design and the next section, the qualitative study supports the quantitative approach in an attempt to seek more explanation and interpretation.

5.4.1.2. Qualitative Research

Qualitative researches are designed to provide the researcher a means of understanding a phenomenon by observing or interacting with the participants of the study (Denzin & Lincoln, 2008). Therefore, qualitative researchers are interested in exploring and/or explaining phenomenon as they occur in the natural setting. This

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means that qualitative researchers study things in their natural settings, attempting to make sense of, or interpret, phenomena in terms of the meanings people bring to them (Newman & Benz, 1998).One of the greatest strengths of qualitative methods is that they have the potential to generate rich descriptions of the participants’ thought processes and tend to focus on reasons “why” a phenomenon has occurred (Creswell, 2003).

The qualitative component of this study involves undertaking in-depth interviews with bank managers and regulatory staff to provide response to the following sub research question:

RQ6: How do banks respond to the prevailing market structure (bank conduct)?

The empirical studies employing the SCP model, which are highly dominated by quantitative approach often fail to allow for banks' market conduct explicitly (Bikker and Haaf, 2002(a)). Instead, they treat it as being determined by structure. However, later critics have pointed out that the conduct variables are being considered among few variables which the SCP failed to consider. The qualitative analysis in this study is justified not only from the importance of including such variable in the evaluation but is also from its helpful contributions that include: first, providing useful comparison on banks’ perception of their conduct in the market against the conduct deduced from the quantitative result as suggested by the SCP model. Second, bank conduct studies are also helpful in testing some of the managerial behaviors in concentrated banking industry like Ethiopia. For instance, Hicks (1935) quiet life hypothesis asserts that in a concentrated market firms do not minimize costs, because of insufficient managerial effort, lack of profit-maximizing behavior, wasteful expenditures to obtain and maintain monopoly power, and/or survival of inefficient managers (Berger & Hannan, 1998). Therefore, firms and managers choose ‘a quiet life’ which result in a negative correlation between market power and managerial efficiency. Even if such behavior can be statistically inferred from the SCP model, the qualitative approach provides an in depth look on some of the behaviors of managers in concentrated (or otherwise) banking

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market. Third and most importantly, whenever there appears an attempt to include measures of conduct on the quantitative model, only few variables (e.g. advertising expense or selling expense etc.) which can provide a partial look on bank conduct are utilized. This is mainly related to the qualitative nature of some of the variables that may explain bank conduct and is due to lack of public information even in some of the quantifiable conduct parameters. Therefore, the researcher argues that since lack of information on variables related to conduct to a certain extent limits the generalization of the quantitative studies, a qualitative approach to answer and support the quantitative result should be employed.

This study intends to pursue the qualitative approach through interviewing both bank managers and regulatory staff. Bank managers are essential participants who directly involve in determining the conduct of their banks in their decision making. In addition, Bank regulators are the one who enact directives to guide the conduct of banks and determine the structure of the industry. Therefore, by collecting interview data from the two groups of participants, the qualitative part of this thesis is likely to provide a better comprehensive picture on concentration-performance relationship than previous studies.