Competition, efficiency and stability: An empirical study of East Asian commercial banks

Phan, Hien Thu; Anwar, Sajid; Alexander, W. Robert J.; Phan, Hanh

doi:10.1016/j.najef.2019.100990

Cited by 51 publications

(54 citation statements)

References 80 publications

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“…Competition contributes to stability through efficiency channel [46] and risk-shifting effect [36] as well as by lessening information asymmetry; however, higher competition impairs the market power and profitability of the financial institutions and to recover the losses, financial institutions are more likely to invest in riskier portfolio and/or without proper screening of borrowers, which in turn hampers the stability. This result corroborates the findings of Phan et al [40].…”

Section: …The Autoregressive Coefficient Is Biased Upwards In the Posupporting

confidence: 93%

“…Besides, the very few researchers, who have recently studied the nexus between competition, efficiency and stability, produced mixed results. These studies found both competition and fragility views [40] with a positive impact of efficiency on stability for four East Asian economies and competition-stability view [31,46] with efficiency as a conduit of stability for European, Latin American banks.…”

Section: Literature Reviewmentioning

confidence: 98%

“…One strand of studies argues that competition and efficiency can be either positively [4,12] or negatively 42] related. Another strand indicates that the increase in efficiency helps to decline nonperforming loan [11] and has positive impact on stability [40]. Moreover, efficient banks tend to have more market power than others [31] and expected to possess lower level of risk [25], which may lead to a stable financial system.…”

Section: Literature Reviewmentioning

confidence: 99%

“…On the other hand, there are few researches on the impact of efficiency on stability [31,40] and impact of competition on efficiency [12,34,42]. Though several researchers mentioned the critical role of efficiency in competition and stability nexus, adequate initiative to explore the impact of efficiency on competition-stability nexus has been ignored.…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Do competition and efficiency lead to bank stability? Evidence from Bangladesh

Dutta

Saha

2021

Futur Bus J

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Financial deregulation after financial repression during 1980s and 1990s has stimulated a fierce competition among banks across the world. In pace with this, banking industry of Bangladesh is also experiencing an intense competition, since it is composed of a large number of banks. Considering this upsurge, our study aims to explore the impact of competition and efficiency on financial stability of Bangladeshi banks over 2009–2017. For exploring this nexus, we calculate Boone indicator and Z-score, construct banking efficiency index by principal component analysis, using bank-level data to measure competition, stability and efficiency, respectively, and analyze the impact of efficiency on financial stability at different levels of competition. We address the endogeneity of the estimation by employing two-step system GMM and different robustness checks. The findings of our study suggest a nonlinear competition–stability relationship, and though efficiency contributes to stability, the impact is moderated in the presence of competition. Our findings are robust to alternative measures of competition, stability and control variables, which could be useful for policy makers to formulate strategies and policies to maintain financial stability.

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Section: …The Autoregressive Coefficient Is Biased Upwards In the Posupporting

confidence: 93%

Section: Literature Reviewmentioning

confidence: 98%

Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Do competition and efficiency lead to bank stability? Evidence from Bangladesh

Dutta

Saha

2021

Futur Bus J

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“…This research uses the Lerner index as an inverse measure of market competition to explore the role of competition in determining bank margins. The Lerner index has been used by several researchers to measure bank competition (Amidu & Wolfe, 2013a; Huang, Chiang, & Chao, 2017; Kabir & Worthington, 2017; Kick & Prieto, 2015; Phan, Anwar, Alexander, & Phan, 2019; Weill, 2011). The index is defined by how much a bank can charge above the marginal cost and varies from 0 to 1.…”

Section: Data and Econometric Modelingmentioning

confidence: 99%

Banks' environmental policy and business outcomes: The role of competition

Khattak

Saiti

2020

Bus Strat Env

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By integrating the two areas of competition–performance and environment–performance, this research explores if competition matters in the relationship between environmental practices and interest margins in the market. A panel of 458 banks from 74 countries for the period of 2006–2016 is used, and the sample is further divided into developed and developing countries. This paper uses the system Generalized Method of Moments estimator to tackle potential omitted variable bias, endogeneity, and simultaneity issues. Without competition, environmental practices only affect banks in developing countries; however, the results show a significant impact for the full sample, including developed countries, when the competition is taken into consideration, suggesting that competition might play a role in the relationship of environmental practices and interest margins. In the full sample, competition impacts the relationship negatively after a moderate level of competition is reached in the market. The environmental practices in developing countries are prone to competition in the market. In developed countries, the competition is found to be lightly positively moderating the impact of environmental practices on interest margins. Based on these findings, it is recommended that developing countries should have a low or moderate level of competition to encourage environmental practices. For developed countries, however, high competition should be preferred to encourage banks to consider environmental practices as one of their core business strategies. These findings are found robust to different statistical estimators.

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Does competition lead to financial stability or financial fragility for Islamic and conventional banks? Evidence from the GCC countries

et al. 2020

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This paper investigates the nexus between stability and competition in the banking sector of the Gulf Cooperation Council. We examined a sample of 75 banks over the period 2006–2016. We found a U‐shaped relationship between bank stability and competition suggesting competition‐stability and competition‐fragility nexus. Banking concentration was found to affect instability negatively, which supported the “too important to be bailed out” view. Furthermore, we found that Islamic banks were less stable compared to conventional banks. We also found that bank size, profitability and capital regulation increase bank stability. In addition, the stock market return and the level of debt‐to‐GDP increase instability while the growth in oil price increase stability. Our findings are relevant to regulators to impose or release restrictions that boost financial stability.

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Competition, efficiency and stability: An empirical study of East Asian commercial banks

Cited by 51 publications

References 80 publications

Do competition and efficiency lead to bank stability? Evidence from Bangladesh

Do competition and efficiency lead to bank stability? Evidence from Bangladesh

Banks' environmental policy and business outcomes: The role of competition

Does competition lead to financial stability or financial fragility for Islamic and conventional banks? Evidence from the GCC countries

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