Switching costs and bank competition: Evidence from dual banking economies

Rizkiah, Siti Kholifatul; Disli, Mustafa; Salim, Kinan; Razak, Lutfi Abdul

doi:10.1016/j.intfin.2021.101445

Cited by 10 publications

(9 citation statements)

References 91 publications

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“…The estimation show that switching costs have a significant positive effect on market power. These results are consistent and support of Egarius & Weill (2016) and Rizkiah et al (2021) hypotesis. That increase in switching costs immediately encourages an increase in market power.…”

Section: Discussionsupporting

confidence: 89%

“…The existence of switching costs turns out to be increasingly affecting market power. In its development, Switching cost has a significant positive effect on market power (Egarius & Weill, 2016;Rizkiah et al, 2021). This condition shows that the higher the switching cost, it is certain that the price charged to consumers will increase.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Meanwhile, Shy (2002) states that this equation should be a solution to the nash balance in the oligopolistic market. After reviewing various aspects and adaptations of Egarius & Weill (2016), Miah et al (2020), andRizkiah et al (2021) then switching cost score can be formulated as flow:…”

Section: Switching Cost: Bertrand Freamworkmentioning

confidence: 99%

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Does Switching Cost Affect Dual Rural Banks Market Power?

Fajri

Purwono²

2022

JDE

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This study aims to review the effect of switching costs on rural bank market power. This study is using dynamic panel regression of the Generalized Method of Moments (GMM). This paper used panels of 1266 rural banks and 113 Sharia Rural banks from 2013 to 2019. To further analyze this study using Lerner Index as proxies of market power, Bertrand Competitions models as proxies of switching costs, and banking indicators covering bank size, equity, non-interest income, and the burden of allowance for productive assets (Lost Loans Provision). The results show that switching costs have a significant positive effect on the conventional rural bank and negatively affect sharia rural bank's market power. This condition is caused by various reasons, namely the limited choice of rural banks so that consumers survive the switching costs charged. Meanwhile, in sharia rural bank transparency is clearly seen on the side of mudharobah and musyarakah which makes it unable to increase financing margins freely.

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Section: Discussionsupporting

confidence: 89%

Section: Literature Reviewmentioning

confidence: 99%

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Does Switching Cost Affect Dual Rural Banks Market Power?

Fajri

Purwono²

2022

JDE

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“…In line with the literature on banking, we winsorize the independent variables at 2% to reduce the influence of extreme values (Rizkiah et al ., 2021; Zhang et al ., 2020). We summarize the descriptive statistics in Table 3.…”

Section: Results and Analysismentioning

confidence: 99%

Social finance, institutional quality and stability of Islamic banks: evidence from four countries

Danlami

Abduh

Razak

2023

IJSE

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PurposeIslamic banks, despite being Shariah-compliant, have long been criticized for mimicking conventional banks in terms of their products and processes (Khan, 2010; Kuran, 1996). However, several Islamic banks do engage in philanthropy (zakat and charity) and risk-sharing financing (mudarabah and musharakah) instruments that better meet their raison d'etre, the fulfillment of Maqasid al-Shariah (Jatmiko et al., 2023). These contracts, however, are more susceptible to moral hazard and adverse selection problems than traditional debt-based finance (Azmat et al., 2015) and may impair Islamic bank stability. This paper explores the relationship between social finance and the stability of Islamic banks, and whether institutional quality moderates this relationship.Design/methodology/approachUsing hand-collected annual data on social finance from 12 Islamic banks in four countries: Bangladesh, Bahrain, Indonesia and Malaysia, between 2006 and 2019, the authors employ the feasible generalized least squares and the panel-corrected standard errors methods for the analysis. The Stata version 16 software was used to analyze the data for the study.FindingsThe results indicate that mudarabah and musharakah financing raises the stability of Islamic banks. The authors also found that mudarabah and musharakah expose Islamic banks to more risk-taking behavior amidst the conditioning effect of institutional quality. On the other hand, charity induces the stability of Islamic banks, while zakat increases the risk-taking behavior of the banks. Further, when the quality of institutions was used as a moderator, both zakat and charity induced the stability of Islamic banks. The results were robust when liquidity risk was used and partially robust when portfolio risks were employed as measures of stability.Research limitations/implicationsOne concern regarding the application of Islamic social finance is that it might be a risky strategy for Islamic banks. In terms of research implications, the available evidence suggests that the use of Islamic social finance instruments is not detrimental to the stability of Islamic banks. Hence, regulators and policymakers should not penalize Islamic banks for using Islamic social finance instruments that help provide financial solutions to the underserved and unserved. In terms of research limitations, the study could not include other relevant Islamic social finance instruments such as waqf and qard al-hassan. Furthermore, data availability restricts the analysis to only 12 Islamic banks in fourcountries. As more Islamic banks in different countries venture into Islamic social finance, and the quantity and quality of information improve, future studies could explore the issue further.Social implicationsThe available evidence suggests that the use of Islamic social finance instruments does not worsen the stability of Islamic banks. Given the dominance of sale- and lease-based contracts in Islamic financing (Aggarwal and Yousef, 2000; Šeho et al., 2020), these findings should encourage other Islamic banks to provide financial solutions using other Shariah-compliant contracts including those based on risk-sharing and philanthropy. This would be a better reflection of the Islamic banks’ value proposition as it helps boost social activities that have a high impact on the activities of small businesses, contributing to the real economy and promoting well-being in society.Originality/valuePrevious studies mainly relied on mudarabah, mushakarah and zakat separately as they relate to the performance of Islamic banks. This study explores the impact of social finance which includes charity and zakat to examine their impact on Islamic banks’ stability. Further, the authors use institutional quality as a moderating variable in the relationship between Islamic social finance instruments and the stability of Islamic banks.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-06-2022-0441

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“…Switching costs are expenses that customers have to incur when switching from a service provider to another. Rizkiah et al, (2021) discussed the dual banking system in terms of switching costs and found that conventional banks incur higher switching costs than Islamic banks. Zulkhibri (2019).…”

Section: Literature Reviewmentioning

confidence: 99%

Geleneksel Bankalarin Kredi̇leri̇ Katilim Bankalarinin Kredi̇leri̇ni̇ Dişliyor Mu?

DİLBER

Hatipoğlu

2022

Muhasebe Ve Finans İncelemeleri Dergisi

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A dual banking system has emerged in Turkey with the participation banks starting to operate since the mid-1980s. Therefore, it is important in terms of financial policies whether the two types of banking models are compatible or incompatible with each other. The aim of this study is to investigate how credits of conventional banks affect participation banks in the context of Turkey. Monthly observations of participation and conventional banks credit during the period between 01/2005 - 02/2022 are used in study. Kalman filter method with simple regression analysis was preferred as a model. The findings implied that the conventional banking model did not hinder participation banks in the credit market.

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Switching costs and bank competition: Evidence from dual banking economies

Cited by 10 publications

References 91 publications

Does Switching Cost Affect Dual Rural Banks Market Power?

Does Switching Cost Affect Dual Rural Banks Market Power?

Social finance, institutional quality and stability of Islamic banks: evidence from four countries

Geleneksel Bankalarin Kredi̇leri̇ Katilim Bankalarinin Kredi̇leri̇ni̇ Dişliyor Mu?

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