Profitability of brokerage houses in Turkey

Abstract

This paper uses a direct measure of efficiency to examine the relationship between market structure and the performance of brokerage houses in Turkey. This methodology involves two stages: First, a stochastic translog cost frontier is specified to obtain a direct measure of efficiency. Second, this measure is included in a profitability equation along with market concentration and market share variables. These two equations are then estimated using quarterly data from 112 brokerage houses for the period 2008-2015. The results show that the efficiency of brokerage houses does not influence profitability when measured directly. Market share, on the other hand, is found to be one of the main determinants of profitability, providing support for the relative market power hypothesis.