Dear Yara

Just to clarify; in a multiple regression your dependent variable is bank profitability and you have bank specific factors (such as liquidity, asset composition e.g. loans, financial leverage) as independent variables. You want to include industry concentration (e.g. herfindahl index) and economic condition (e.g. expansion or recession) as independent variables as well as how they relate to the bank specific factors. You could have an interaction term for each pair of bank specific factor and industry concentration plus an interaction term for each pair of bank specific factor and economic condition. An example is herfindahl index X (total loans/total assets). Another example is (equity capital/total assets) X (economic expansion).

Molyneux, P. (1999). Increasing concentration and competition in European banking: the end of antitrust? Federal Reserve Bank of Chicago, Economic Perspectives 4 (1): 127-133.

Berger, A., and MESTER, T. (1998). The efficiency cost of market power in the banking industry: a test of the quiet life and related hypotheses. Review of Economics and Statistics (80): 454-465

Prasad, B., and Harker, P. (1997), Examining the contribution of information technology toward productivity and profitability in U.S. retail banking. The Wharton School, University of Pennsylvania, Financial Institutions Center 97-09

Dear Yara,

Kindly consider my attached research article which is also on Research Gate that uses Moderated Regression Analysis:

Wanzala, R. W., Muturi, W., and Olweny, T. (2017). The Nexus between Market Tightness and Economic Growth – A Case of Kenya, Journal of Finance and Economics, vol. 5, no. 6 (2017): 259-268.

Thank you

Dear Yara,

Methodology

1. Linear, multiple regression model, or

2. GMM (for dynamic panel regressions)

Explanatory variable:

1. Efficiency ratio (management quality)

2. Capital adequacy ratio

3. Asset quality

4. Bank size

5. Bank concentration

6. Industry control factors

Dependent variable:

1. Return on assets

2. Return on equity

3. Net interest margin

4. Recurring earnings power ratio

This article is very helpful to help you if you need further assistance.

Best,

Peterson