Bank size, competition and risk in the Turkish banking industry

Abstract

This paper investigates the impact of bank size and competition on earnings volatility and insolvency risk using quarterly data for commercial banks operating in the Turkish banking industry for the period 2002Q1–2012Q2. The main result of the paper indicates that bank size and earnings volatility are negatively related, suggesting that larger banks are less risky. The results also indicate that competition measured by the Boone indicator increases earnings volatility. The results further suggest that higher capitalized banks, banks with a higher share of non-interest income in total income and efficient banks face lower earnings volatility. Finally, insolvency risk measured by Z-score and bank size are positively related, suggesting that larger banks are more stable.