Competition in the Indian Banking Sector: A Panel Data Approach

Li, Zhiheng; Liu, Shuangzhe; Meng, Fanda; Sathye, Milind

doi:10.3390/jrfm12030136

Cited by 12 publications

(11 citation statements)

References 35 publications

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“…: Claessens and Laeven, 2004;Beccalli et al, 2006;Schaeck and Cihak, 2008). A few studies also use the Hstatistic by Panzar and Rosse (1987) (Prasad and Ghosh, 2007;Li et al, 2019), although this index is normally calculated at the market level, while the Lerner indexthe most used measurecan be estimated at the bank level.…”

Section: Literature Reviewmentioning

confidence: 99%

Market power and efficiency of Indian banks: does the “quiet life” hypothesis hold?

Coccorese

Misra

2022

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PurposeThis paper investigates the relationship between market power and efficiency for Indian banks in order to test the validity of the quiet life hypothesis (QLH) during 2005–2019.Design/methodology/approachFirst, the bank-level DEA efficiency scores and three measures of the Lerner index: traditional, efficiency-adjusted, stochastic are estimated. Then, efficiency scores are regressed on Lerner indices plus a set of banking and economic control variables.FindingsRobust evidence against the QLH is obtained. Moreover, the conventional Lerner index suggests that market power of Indian banks, as well as of the different bank groups, increased during the study period, due to a greater reduction in costs compared to that of the price of banking services. The efficiency scores also declined for the banking system as a whole, and for all bank groups except new private banks.Originality/valueThis is the first study testing the QLH for the different categories of Indian banks and also provides robust inferences by using both stochastic and non-stochastic measures of market power.

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Section: Literature Reviewmentioning

confidence: 99%

Market power and efficiency of Indian banks: does the “quiet life” hypothesis hold?

Coccorese

Misra

2022

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“…On similar lines, the institutional diffusion theory posits that innovations result from conformity mechanisms as firms match their rivals’ innovations (Strang and Soule, 1998). Primarily, the Indian banking sector can be characterized as a freely competitive market, with most banks providing similar types of products and ease of access to new firms (Reddy and Nirmala, 2013; Li et al , 2019; Ghosh, 2020). Under such conditions, innovations cannot be used as a source of competitive advantage as there is a high degree of imitability across firms (Porter, 1980).…”

Section: Review Of Literaturementioning

confidence: 99%

Recognizing nonmonotonicity of exogenous determinants in a stochastic profit efficiency framework: have banks overinvested in IT capital?

Prakash

Singh

Sharma

2021

IJOEM

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PurposeThe purpose of this study is to explore and evaluate potential nonmonotonicity in the determinants of profit efficiency, specifically IT and R&D investments in the Indian commercial banking sector.Design/methodology/approachThe study employs an alternative stochastic profit efficiency framework and introduces nonmonotonic effects by parameterizing the location and scale parameters of the inefficiency component on an unbalanced panel data set of 72 commercial banks in the 2008–2019 period. Marginal effects across quartiles are calculated using a bias-corrected and accelerated bootstrap procedure of 500 simulations. The study disaggregates across ownership and size for gauging the impact of structure on the associations between determinants of profit efficiency.FindingsThe study partially rejects the productivity paradox as it discovers a negative association of IT and R&D with profit inefficiency. However, the observed nonmonotonicity of IT is of significance for bank managers, as the study concludes that overinvestment in IT is detrimental to a bank’s profit-maximizing interests. Further, bank size, loan default and credit risk depict a nonmonotonic relationship across the sample with large banks, high NPAs and high credit risk associated with reducing profit efficiency. In addition, higher margins and greater diversification are related positively to efficiency, and banks with cost-heavy structures or having high liquidity risk associated negatively with efficiency.Originality/valueTo the best knowledge of the authors, the study is perhaps the first to acknowledge and incorporate nonmonotonic associations of IT investments amidst other exogenous determinants under a stochastic profit efficiency framework.

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“…Panzar Model Rosse is a literature theory used to examine the condition of market competition (Li et al 2019). This model can identify whether the competitive structure of an industry is in a competitive, monopolistic or monopolistic environment (Chung and Mohd 2018).…”

Section: Panzar Rosse Modelmentioning

confidence: 99%

“…The panse rosse method is currently a popular method used because the estimation is able to assess market conditions at the industry level. Several studies have applied this model such as Li et al (2019). It analyzed the condition of banking competition in India Empirical.…”

Section: Panzar Rosse Modelmentioning

confidence: 99%