Multimarket contact, market power and financial stability in the Turkish banking industry

Abstract

This paper investigates the impact of multimarket contacts among the banks on market power and stability in the Turkish banking industry over the period 2002–2012. The Lerner index and Z-score are used as proxies for market power and bank stability, respectively. The results show that measures of multimarket contacts have increased during the sample period. The main results of the paper suggest that increases in the multimarket contacts among banks are positively related to individual bank stability, but negatively related to bank market power. The results further indicate that greater capitalization has positive impact on the bank stability. However, market concentration has positive and negative impact on bank stability and bank power, respectively. The cost inefficiency is negatively related to the Lerner index, suggesting that inefficient banks generate lower market power compared with efficient ones. The results also show that there is a nonlinear relationship between market power and multimarket contacts. The coefficient of quadratic term is always positive, suggesting that the relationship between market power and contact is a U-shaped form.