Does bank competition and diversification lead to greater stability? Evidence from emerging markets

Amidu, Mohammed; Wolfe, Simon

doi:10.1016/j.rdf.2013.08.002

Cited by 178 publications

(165 citation statements)

References 37 publications

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“…The basic finding is that banking competition leads to stability by means of diversification between interest-generating and interest non-generating activities. Amidu and Wolfe (2013) support the idea that diversification is a channel through which competition affects banking failure risk in emerging countries.…”

Section: The Literature Reviewsupporting

confidence: 60%

“…However, these banks become more stable when diversifying their activities between interest-based and non-interestbased income activities. Amidu and Wolfe (2013) examined how competition affects diversification and stability on a sample of 55 emerging and developing countries. The authors put an emphasis on the relationship "competition -stability" by examining the complex relationship between three key variables: The bank's market power degree, diversification and banking stability.…”

Section: The Literature Reviewmentioning

confidence: 99%

“…The data concerning the variables measuring financial stability are fully reproduced from ChienChiang et al (2014); Amidu and Wolfe (2013) ;Ariss, (2010); Soedarmono et al (2011;2013); Boyd et al (2006) and Uhde and Heimeshoff (2009). They measured Z-score as an index to evaluate the soundness of the banking market.…”

Section: Datamentioning

confidence: 99%

“…Many consider competition in the banking sector as a factor behind the efficient production of financial services, quality of financial products and degree of financial innovation Claessens and Laeven (2004;Amidu and Wolfe, 2013). Moreover, other authors like Berger et al (2009) assume that competition influences banking stability.…”

Section: Introductionmentioning

confidence: 99%

“…In this regard, Amidu and Wolfe (2013) believe that competition forces banks to adopt diversification strategies, which would affect banking risk. In addition to changes in competition that pushed banks to diversify their activities, there is what is known as the hedging strategy (Froot and Stein, 1998), a mechanism to improve profitability and operational efficiency of banks (Landskroner et al, 2005) and to strengthen the function of banks as delegated monitors (Baele et al, 2007).…”

Section: Introductionmentioning

confidence: 99%

See 4 more Smart Citations

The Effect of Diversification of Banking Products on the Relationship between Market Power and Financial Stability

Mensi¹,

Labidi²

2015

American Journal of Economics and Business Administration

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Abstract:In the context of financial liberalization, increased competition has spurred financial institutions to develop new products and new activities in order to meet demand, market development and increased competitiveness. This has made the relationship between market structure and financial stability more complicated and its study through the channel of diversification remains an unexplored area. The purpose of this paper is to test the interaction between market power, diversification and financial (in) stability. To this end, we examine a sample of 18 countries in the MENA region and 157 commercial banks during the period 2000-2013. Supporting the "competition-instability" hypothesis, our results revealed that low market power banks in the MENA region are less robust and more unstable when they less or poorly diversify their activities. Moreover, financial instability in this sector may result from a fierce competition among banks born from the desire to distinguish themselves by offering various nontraditional products, for which banks lack the experience to control its risks.

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Section: The Literature Reviewsupporting

confidence: 60%

Section: The Literature Reviewmentioning

confidence: 99%

Section: Datamentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The Effect of Diversification of Banking Products on the Relationship between Market Power and Financial Stability

Mensi¹,

Labidi²

2015

American Journal of Economics and Business Administration

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International Business

Noi¹

2012

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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 bank competition and diversification lead to greater stability? Evidence from emerging markets

Cited by 178 publications

References 37 publications

The Effect of Diversification of Banking Products on the Relationship between Market Power and Financial Stability

The Effect of Diversification of Banking Products on the Relationship between Market Power and Financial Stability

International Business

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

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