[en] This paper investigates the effect of competition on bank performance and tests the convergence of performance in African banking industry during 2000-2015. Using a theoretical framework by the mean of a market where banks compete in a dynamic Stackelberg oligopoly, we show that most cost-efficient banks outperform less efficient banks when competition increases. We also document that incumbent banks experience a higher decline of Performance when the new entrants are highly cost efficient. We measure performance using traditional accounting measures and construct a Worst vs Best performance metric using both profit and cost efficiency. Results show that the increase of competition is associated with a decrease of performance. Furthermore, this analysis reveals that although competitions decrease Banks’ profitability, best performing banks tend to more likely outperform worst performing banks in terms efficiency when competition increases. In other words, the effect competition of banks on performance depend on the efficiency of incumbent banks and new entries in the market. Our results are robust to alternative specifications such as Heckman selection two-step model that helps to correct for section bias.
