Market Power and Multidimensional Efficiency in Banking: Diversification, Stability, and Digital–Governance Dynamics

Response to Reviewer 1 Comments

1. Summary

Thank you very much for taking the time to review this manuscript. Please find the detailed responses below and the corresponding revisions/corrections highlighted/in track changes in the re-submitted files.

2. Questions for General Evaluation

Reviewer’s Evaluation

Response and Revisions

Does the introduction provide sufficient background and include all relevant references?

Can be improved

Is the research design appropriate?

Can be improved

Are the methods adequately described?

Can be improved

Are the results clearly presented?

Can be improved

Are the conclusions supported by the results?

Can be improved

Are all figures and tables clear and well-presented?

Can be improved

3. Point-by-point response to Comments and Suggestions for Authors

Comments 1: Clearly state the data sources, sample size, study period and selection criteria.

Response 1: We have revised the Methodology section to explicitly clarify the data sources, sample construction, observation period, and selection criteria. The revised manuscript now clearly states that the study uses bank-level data for conventional commercial banks in ASEAN and MENA countries over the period 2010–2019, sourced primarily from Bloomberg and complemented with banks’ annual reports and official stock exchange disclosures. We also explain the exclusion of banks with incomplete disclosures and justify the focus on the ten largest banks by total assets in each country to ensure systemic relevance and data consistency. These clarifications are highlighted in the revised Methodology section (Lines 436–452).

Comments 2:  Explain how key concepts (governance quality, institutional complexity, digital maturity, market digitalization) are measured.

Response 2:  We have substantially expanded the measurement descriptions of all composite constructs developed in this study to ensure transparency and replicability. Specifically, we now provide concise but explicit explanations of how Corporate Governance Quality (CGQ), Institutional Complexity, Digital Transformation Maturity (DTM), and Market Digitalization Level (MDL) are constructed, including their underlying components, weighting schemes, normalization procedures, and data sources. While maintaining the main equations in the text, we clarify how each sub-dimension is operationalized in practice. These additions are highlighted in the revised Methodology section (Lines 510–573).

Comments 3: Give reasons for using PLS‑SEM instead of covariance‑based SEM, including sample size and assumptions.

Response 3:  We have strengthened the methodological justification for using Partial Least Squares Structural Equation Modeling (PLS-SEM). The revised manuscript now explicitly explains that PLS-SEM is appropriate given the study’s moderate sample size, the presence of multiple latent constructs, and the inclusion of mediation and moderation effects under non-normal data conditions. We also clarify that PLS-SEM prioritizes predictive accuracy and variance explanation, which aligns with the study’s objective of comparing strategic pathways for market power and multidimensional efficiency rather than testing a strictly confirmatory covariance structure. These justifications are highlighted in the revised Methodology section (Lines 576–584).

Comments 4: Add details on validity and reliability checks (e.g., Cronbach’s alpha, composite reliability, discriminant validity).

Response 4: We appreciate the reviewer’s suggestion. Since this study utilizes secondary data where each latent construct is represented by a single-item indicator (e.g., specific financial ratios or pre-calculated composite indices), traditional reliability metrics like Cronbach’s alpha and Composite Reliability (CR) are inherently equal to 1.000 and do not provide meaningful diagnostic value. Instead, we have strengthened the measurement model assessment by reporting: (1) Discriminant Validity through latent variable correlation analysis (Section 4.2); and (2) Full Collinearity VIFs (AFVIF) to ensure against vertical and lateral collinearity, which is the standard for single-indicator PLS-SEM models. These details are included in Tables 3, 4, and 5 (Highlighted in Yellow). Furthermore, we have updated Section 4.2 to explicitly clarify the use of single-item constructs derived from secondary sources.

Comments 5: Provide tables showing coefficients, p‑values and effect sizes for all relationships tested.

Response 5:  We sincerely thank the reviewer for the suggestion to enhance the transparency of our results. We have updated Table 6 in Section 4.4 and Table 7 in Section 4.5 to include Cohen’s f² effect sizes for all direct, mediated, and moderated relationships. The corresponding narrative in Sections 4.4 and 4.5 has also been revised to provide a more substantive interpretation of these effect sizes. These revisions are highlighted in yellow and can be found between Lines 689 and 745.

Comments 6:  If possible, include path diagrams of the PLS‑SEM model to make results easier to follow.

Response 6:  Thank you for this constructive feedback regarding the visual presentation of our model. To make the results easier to follow, we have included detailed path diagrams in Figure 2 (Determinants of Market Power) and Figure 3 (Determinants of Bank Efficiency). These diagrams visually summarize the path coefficients and significance levels for all tested hypotheses, as seen on Lines x and x.

Comments 7:  Present ASEAN and MENA results side by side to highlight differences.

Response 7:  We have presented the results for ASEAN and MENA side-by-side in Table 8 within Section 4.6 (Multi-Group Analysis Results). This side-by-side presentation, along with the reported absolute differences, allows for a direct comparison of how structural relationships vary across the two regions. This section is highlighted in yellow and is located between Lines 707 and 766.

Comments 8:  Report robustness checks to confirm the strength of findings.

Response 8:  We have included a formal robustness assessment in Section 4.7 (Table 9). We utilized the Warp3 Bivariate Causal Direction Ratio test to address potential endogeneity and reciprocal causality. The results show that the primary paths for diversification and stability consistently exceed the 1.0 threshold, confirming the strength of the hypothesized causal flow. Additionally, our Multi-Group Analysis (MGA) serves as a cross-regional robustness check, demonstrating that the findings remain consistent across the ASEAN and MENA banking systems. This section is highlighted in yellow and is located between Lines 837 and 861.

Comments 9:  Frame conclusions as associations, not causal claims, given SEM’s limitations.

Response 9:  Thank you for the insightful comment. We have revised the Conclusion to ensure that findings are framed as significant associations rather than definitive causal claims, acknowledging the inherent limitations of our cross-sectional SEM design. These revisions are highlighted in yellow and can be found on Lines 947–990.

Comments 10:  Expand the discussion of policy implications, especially for regulators and bank managers balancing digitalization, diversification and stability.

Response 10:  We have expanded the discussion of policy implications in Section 6. We now provide more specific guidance for bank managers on using DTM to balance growth and efficiency, and for regulators on the importance of MDL and governance. This revision is highlighted in yellow on Lines 972–981.

Comments 11:  Use a broader range of references to avoid relying too much on a few authors.

Response 11:  We appreciate this constructive feedback. We have significantly expanded the reference list, particularly in the Introduction and Literature Review, to include a more diverse range of perspectives and recent studies (2024–2025). Regarding certain sections, we have attempted to incorporate additional sources; however, due to the novel nature of testing specific relationships (e.g., the multidimensional efficiency trade-offs and digital transformation maturity), the available empirical literature remains limited, necessitating the focused use of key foundational authors.

Comments 12:  Shorten long sentences to improve readability.

Response 12:  We are very grateful for the reviewer’s guidance on improving the readability of the article. We have performed a comprehensive review and revision of the entire manuscript, from the Introduction through to the Conclusions, to address long and complex sentence structures. These sentences have been broken down or rephrased into shorter, more direct statements to enhance clarity and ensure a smoother flow of arguments for the reader. These extensive linguistic improvements are highlighted in yellow across Sections 1 to 6.

Comments 13:  Keep terminology consistent (e.g., NNIN, DTM, MDL).

Response 13:  We have carefully reviewed the manuscript to ensure consistent terminology throughout. All key constructs are now uniformly labeled using standardized abbreviations, including non-interest income (NNIN), Digital Transformation Maturity (DTM), and Market Digitalization Level (MDL). Inconsistent or alternative labels have been removed to improve clarity and readability. These corrections are implemented consistently across the Introduction, Methodology, Results, and Discussion sections.

Response to Reviewer 2 Comments

1. Summary

Thank you very much for taking the time to review this manuscript. Please find the detailed responses below and the corresponding revisions/corrections highlighted/in track changes in the re-submitted files.

2. Questions for General Evaluation

Reviewer’s Evaluation

Response and Revisions

Does the introduction provide sufficient background and include all relevant references?

Must be improved

Is the research design appropriate?

Can be improved

Are the methods adequately described?

Can be improved

Are the results clearly presented?

Must be improved

Are the conclusions supported by the results?

Can be improved

Are all figures and tables clear and well-presented?

Yes

3. Point-by-point response to Comments and Suggestions for Authors

Comments 1: The introduction provides a general overview of the research problem and outlines the study’s objectives with reasonable clarity. However, the background discussion remains somewhat narrow and does not fully situate the manuscript within the broader international literature. Several relevant and recent studies could be more explicitly integrated to strengthen the theoretical positioning and clarify the manuscript’s contribution relative to existing research.

Response 1: We have thoroughly revised the Introduction to better situate our study within the broader international banking literature. Specifically, we have: (1) Integrated the Resource-Based View (RBV) and Agency Theory (Information Asymmetry) to strengthen the theoretical positioning; (2) Added international context regarding Basel III and Negative Interest Rate Policies (NIRP) from European and emerging market perspectives; and (3) Explicitly clarified the research gap by contrasting our multidimensional efficiency approach (technical, scale, and allocative) against existing studies that focus on single dimensions. The comprehensive updates, including the sharpened research gap and international context, are highlighted in yellow in the Introduction (Lines 40–111).

Comments 2:  Some methodological decisions are insufficiently justified, and additional detail would be necessary to ensure full replicability. Clarification regarding key assumptions and potential sources of bias would strengthen the methodological rigor.

Response 2:  We have revised the Methodology section to provide additional justification for key methodological decisions and to enhance replicability. In particular, we clarify the assumptions underlying the construction of composite indices, the rationale for focusing on large banks, and the separation of market power and efficiency into two structural models. We also acknowledge potential sources of bias related to data availability and cross-country heterogeneity, and explain how these concerns are mitigated through standardized data sources, normalization procedures, and robustness via multi-group analysis. These revisions are highlighted in the Methodology section (Lines 436–593).

Comments 3: The pooling of ASEAN and MENA countries within a single empirical framework may obscure substantial institutional, regulatory, and macroeconomic heterogeneity across regions. Although the authors apply multi-group analysis, the manuscript does not clearly report whether measurement invariance of the latent constructs was formally tested prior to cross-group comparisons. In the absence of such tests, the validity and comparability of the estimated relationships across regions remain methodologically questionable.

Response 3:  We appreciate this important methodological concern and have revised the manuscript to clarify our approach to cross-regional comparison. The study does not assume homogeneity between ASEAN and MENA banking systems; instead, heterogeneity is explicitly addressed through multi-group analysis (MGA). We now clarify that the latent constructs are consistently defined and operationalized across regions, using identical indicators, weighting schemes, and normalization procedures. This ensures configural comparability of the measurement models prior to MGA. While formal MICOM procedures are not directly implemented in WarpPLS, the use of identical measurement specifications and separate structural estimations provides a defensible basis for cross-group comparison, consistent with prior PLS-SEM applications in cross-country banking research. This clarification has been added to the revised Methodology section (Lines 585–593).

Comments 4:  The robustness of the findings could be strengthened by implementing supplementary robustness checks, including alternative model specifications, sensitivity analyses. Such extensions would increase confidence in the stability and generalizability of the results.

Response 4:  We have strengthened the methodological rigor by adding Section 4.7. To increase confidence in the stability of our results, we implemented: (1) Alternative Model Specifications using the non-linear Warp3 algorithm; (2) Endogeneity Testing via causal direction ratios for all main and control variables (Size, Leverage, RMQ); and (3) Multi-Group Analysis (MGA) to validate the findings across different institutional contexts. These cumulative tests demonstrate that the estimated relationships are statistically robust and not driven by sample-specific biases or reverse causality. This section is highlighted in yellow and is located between Lines 837 and 861.

Comments 5:  The results are presented in a structured and generally clear way, with logical progression from descriptive findings to more advanced analyses. Tables and figures support the main findings effectively, although the interpretation of results is sometimes descriptive rather than analytical. Greater emphasis on linking the results directly to the underlying research questions would enhance clarity.

Response 5:  We are very grateful for the reviewer’s insightful comment regarding the depth of our interpretation. We have significantly revised Sections 4.4, 4.5, and 4.6 to move beyond a purely descriptive presentation of the data. The revised narrative now adopts a more analytical approach by explicitly linking each empirical result back to its corresponding research question and hypothesis (H1–H9). We have added depth to the discussion to explain the strategic and institutional implications of the findings, ensuring greater clarity on the study's core contributions. These extensive revisions are highlighted in yellow from Lines 685 to 821.

Comments 6:  The conclusions summarize the main findings accurately and are broadly supported by the reported results. However, some claims appear stronger than warranted by the empirical evidence, particularly with respect to generalizability. A more cautious interpretation and clearer acknowledgment of the study’s limitations would improve this section.

Response 6:  We appreciate the feedback on generalizability. We have adopted a more cautious interpretation of our findings and explicitly added a statement regarding the regional specificities of ASEAN and MENA as a limitation to the study's generalizability. This update is highlighted in yellow on Lines 982–990.