Effect Of Bank Competition Research Articles

Risking or de-risking? The effect of banking competition on large state-owned banks and small and medium-sized enterprise lending: Evidence from China

This study examines the effect of the expansion of small and medium-sized bank branches on large state-owned banks in China based on bank branch-level financial data and detailed loan-level data from 2008 to 2015. We find that the expansion of small and medium-sized banks favorably impacts the operating income of large state-owned banks without intensifying bank risk-taking. Large state-owned banks, used to lack competition, expand their total lending scale to achieve more operating revenue by servicing more firms, especially small and medium-sized enterprises (SMEs). This promotes SMEs' access to finance, while also raising the operating costs of large state-owned banks. More importantly, the lending standards and loan quality of large state-owned banks do not deteriorate, implying that they do not employ risky lending tactics to deal with increased competition.

The Effect of Banking Competition and Efficiency on Banking Performance Moderated by GCG and Crisis Factors

The aim of this research is to test the influence of the level of competition on bank profitability, bank efficiency on bank profitability, test the relationship between competition and bank efficiency and company performance using ROA as a measure of performance, while GCG and the crisis period due to the pandemic are used as moderating variables for this relationship. . Testing of this research uses the multiple regression analysis method with the help of the SPSS version 21 program. The results of this research show that competition is a variable that has a positive and significant influence on banking performance. The greater competitive ability of banks will improve their performance. However, the bank's technical efficiency has not shown significant results. The moderating effect of implementing GCG by banks does not seem to be able to improve the relationship between competition and performance. The same results were also obtained on the relationship between bank efficiency and performance which also cannot be moderated by GCG. The moderating effect of the crisis period was found to be significant on the relationship between competition and bank performance, whereas during the crisis the relationship between competition and bank performance remained low. However, bank efficiency was not moderated by the crisis period resulting from the pandemic.

Do banks enjoy technology under competitive pressures? Cross-country evidence

ABSTRACT Financial institutions have focused on technology to enhance efficiency and reduce operating costs. We argue that due to competitive pressures, banks may not benefit from these technological investments, which may incur an extra charge to the bank. This research examines if being technologically advanced increases banks’ financial performance in a competitive market. The contribution of this study is threefold; it examines, first; the impact of technology adaptation on financial performance, second; the effect of bank competition on banks’ financial performance and third; we integrate the theories on tech-performance nexus and competition-performance nexus and examine if competition impacts the relationship between technology and financial performance. The findings suggest that technology enhances banks’ financial performance, and competition makes banks fragile, supporting the competition-fragility theory. Moreover, the results on the impact of competition on the tech-performance nexus suggest that banks only benefit from investments in technology under low or moderate levels of market competition and that under highly competitive pressures, technology might not bring that extra competitive advantage to banks. With the said empirical evidence, it becomes clear how important technology can be for banks. The study carries vital policy insights for regulators and practitioners.

How Does Bank Competition Affect Banking Stability? The Case of an Emerging Market

This paper examines the role of interbank competition on banking stability in Jordan, an emerging market. Using competition estimates measured by Lerner index, the paper examines the impact of competition on two important dimensions of banking stability, namely, credit risk and liquidity risk. The empirical results suggest that the effect of banking competition on stability differs according to the dimension of stability. After controlling for bank-level control variables and macroeconomic conditions, the empirical results of the impact of market power measured by Lerner index on credit risk show that an increase in price competition leads to more risk taking from banks. On the other hand, the impact of price competition on the second dimension of banking stability (liquidity risk) implies that an increase in price competition improves the liquidity position of banks. However, these results hold only for the sample of non-Islamic banks. Islamic banks may face wider mismatch between its assets and liabilities due to its inability to use conventional debt instruments offered by the market and hence it keeps larger cash buffers to compensate for this extra risk.

Bank Competition, Combination of Industry and Finance, and Enterprise Innovation: Evidence from China

Bank competition promotes enterprises to obtain credit funds through market mechanisms, and a combination of industry and finance (CIF) has an important influence on establishing bank‐enterprise relationship. Based on data of 2,245 manufacturing enterprises and branches of commercial banks in China from 2007 to 2019, this research establishes a moderated mediation model to verify whether CIF has a moderating effect on bank competition on enterprise innovation. The results are as follows. First, bank competition can both directly and indirectly promote enterprise innovation by alleviating financing constraints. Second, CIF has no moderating effect on the direct effect of bank competition on enterprise innovation but has a negative moderating effect on the first half of mediating effect.

The effects of bank competition, financial stability and ownership structure: evidence from the Middle East and North African (MENA) countries

PurposeThis study aims to show the relationship between competition, financial stability and ownership structure of banks in the Middle East and North African (MENA) countries.Design/methodology/approachThis study uses the generalized method of moments (GMM) estimators to generate research results. This study uses an unbalanced panel dynamic data set. It covers the period 2011 to 2017 in MENA banks.FindingsThis study implies that there is a significant and positive relationship between market power and the financial stability of banks in MENA countries. It explains a competitive market focus on credit risk, which turns them risky. From the bank’s ownership view, Islamic banks are in a less risky position which means Islamic banks are more stable than other ownership structures. On the other hand, government specialized institute displays their poor financial stability and risky from other ownership structures. Unfortunately, there is no significant impact of ownership structure on competition unless Islamic banks prove that they (Islamic banks) perform better in market power.Practical implicationsThe empirical findings of this study suggest that MENA banks should improve the process of managing and monitoring the non-performing loan (loan segment business). It reduces the level of credit risk, which leads to achieving more profit. It also recommends that loan quality should improve immediately in this region for declining financial disruption. Based on the ownership structure, policymakers and stakeholders should adjust their risk and financial stability. Notably, the stakeholders can focus on Islamic banks in this region as this type of ownership structure showing superiority over other ownership structures.Originality/valueThis study is based on the latest data set and produced outcomes by using a GMM estimator. It also uses multiple measures of competition and risk variables to get robust results. Moreover, to the best of the knowledge, this study is the pioneer to examine the competition, risk (financial stability) and ownership structure of banks in the MENA countries.

“Double-edged Sword” Effect of Banking Competition on the Export Quality Upgrading of Chinese Enterprises：Based on Dual Perspectives of Quality Adjustment and Export Entry

In recent years, with the rise of trade protectionism and the surging of economic globalization, the focus of China’s export trade has shifted from quantity expansion to quality improvement. In this context, improving the export quality of enterprises has become an important part of China’s transformation from a big trading country to a powerful trading country. For enterprises, adequate financial support is the basic premise of quality upgrading. Then, in China, where enterprise funds are mainly from bank loans, the improvement of export quality is naturally inseparable from the support of the banking system. Therefore, how to put forward the new path of upgrading the export quality of Chinese enterprises from the perspective of banks is not only related to the implementation effect of China’s trade power strategy, but also the important connotation of constructing the mechanism of “financial services to the real economy”. Based on this, this paper analyzes the impact of banking competition on the export quality of Chinese enterprises from the “financial services real economy” perspective. Based on the heterogeneous enterprise trade model, we construct a theoretical model of banking competition affecting the product quality of export enterprises. Then we use the data from China’s Industrial Enterprise Database and China’s Customs Database to do the empirical tests, the result shows that: Firstly, banking competition plays a “double-edged sword” effect on the export quality of Chinese enterprises. Specifically, banking competition eases the financing constraints of Chinese enterprises, which on the one hand promotes export enterprises to upgrade the product quality, on the other hand causes a large number of low-quality enterprises to enter the export market, and finally makes banking competition inhibit the upgrading of the average export quality of Chinese enterprises. Secondly, compared with urban commercial banks and foreign banks, state-owned banks and joint-equity banks have a greater positive effect on the export quality of enterprises. Thirdly, the reformation of banking system in 2003 has greatly reduced the negative impact of banking competition on export quality. In particular, the impact of banking competition on the export quality of state-owned enterprises was significantly positive after 2003. These conclusions not only enrich the relevant research literature of banking competition and export quality, but also provide new empirical evidence for the economic effect of China’s banking joint-stock system reform, which has important practical significance for the banking industry to better play the role of serving the real economy and helping the high-quality development of China’s export trade.

Nurturing regional innovation: the effects of bank competition in the USA

Whilst corporate innovation is one of the key drivers of regional economic growth, question remains over how regional corporate activities are affected by local banking market structure. By attaching regional corporate innovation activities to a market power hypothesis, this paper examines (1) if regional innovation activities would benefit from the improved banking market competition and (2) the variation of banking market competition effects on innovation outputs over unique regional characteristics, such as state-level R&D intensity and distribution of innovation activities. Using patent and citation data and local bank data from 51 states in U.S between 1992 and 2004, we show that improved local banking market competition increases both the quantity (patents) and quality (citations) of regional innovation outputs. It is also found that such a favourable effect on regional innovation is especially stronger for those states with low R&D intensity and those with more concentrated innovation activities.

Nurturing regional innovation: the effects of bank competition in the USA

Whilst corporate innovation is one of the key drivers of regional economic growth, question remains over how regional corporate activities are affected by local banking market structure. By attaching regional corporate innovation activities to a market power hypothesis, this paper examines: 1) if regional innovation activities would benefit from the improved banking market competition; 2) the variation of banking market competition effects on innovation outputs over unique regional characteristics, such as state-level R&D intensity and distribution of innovation activities. Using patent and citation data and local bank data from 51 states in the USA between 1992 and 2004, we show that improved local banking market competition increases both the quantity (patents) and quality (citations) of regional innovation outputs. It is also found that such a favourable effect on regional innovation is especially stronger for those states with low R&D intensity and those with more concentrated innovation activities.

Bank competition, concentration and EU SME cost of debt

Despite the plentiful debate on the effects of bank competition on SME access to finance and growth, only few studies have explored the impacts on SME cost of debt. This study examines how bank market power affects the credit costs of SMEs by using unique matched SME-bank data from 17 EU countries. We show that bank market power reduces the cost of debt for SMEs. Such a favorable effect is stronger for SMEs that are less informationally transparent, and in the economies subject to less credit information depth and business extent of disclosure. These findings support the Information-based Hypothesis, whereby market power motivates banks to invest in soft information acquisition and to build lending relationships to reduce information costs. In addition, we show that despite the favorable effects of relationship lending brought by bank market power, SME credit conditions worsen in a more concentrated banking market.

Bank regulations, bank competition and bank risk-taking: Evidence from Japan

We study the relaxation of the capital requirements regulation in Japan around the global financial crisis of 2007–08, which represents a change in bank regulation, to test whether an effect of bank competition on risk-taking is moderated by a change in bank regulation. Although this particular change in bank regulation in Japan was primarily meant to help stabilize the banking system, we show that there is evidence for some spillover effects on bank risk-taking. We find that bank competition is positively associated with ex ante bank risk-taking, roughly measured as loan growth and the interest rate margin. We show that the relaxation of the capital adequacy requirement affects the influence of bank competition on bank risk-taking. With domestically active banks getting more preferential treatments from the regulatory change, the relaxation of the regulation appears to have the differential effects on bank risk-taking across the domestically active banks and the internationally active banks in Japan.

Does bank competition spur firm innovation?

ABSTRACT For transition economies, the virtues of financial development for economic growth are obvious; however, bank competition has dubious effects due to various firm characteristics. This study uses Chinese banking and firm data from 1998 to 2011 to examine how bank competition affects firm innovation and how firm size and ownership influence the effects of bank competition. The results show that bank competition promotes firm-level innovation and that this positive effect is stronger for small firms and non-state-owned enterprises (non-SOEs). In addition, bank competition has a more beneficial influence on innovation for transparent firms and domestic firms. These conclusions thus shed light on the real effects of bank competition and the determinants of firm innovation in developing countries.

How Does Bank Competition Affect Systemic Banking Crises?

Literature present conflicting views on the effect of bank competition on financial stability. Some argue that competition increases adverse shocks in the financial system while others argue that it reduces the likelihood of such events. The purpose of this study is to further examine this relationship using a more recent systemic banking crises database of Laeven and Valencia (2018). There are 61 countries which had experienced systemic crises during 1996-2017. This study used Lerner index and Boone indicator as proxy measures of competition and three estimation techniques to estimate the relationship. The results indicate that the effect of competition on financial stability varies with estimation techniques and proxy measures of competition and stability. Lerner index indicates that competition increases financial instability while Boone indicator shows the opposite. Thus, this study concludes with mixed evidence on the relationship between bank competition and financial stability.

The Effect of Bank Competition on the Cost of Credit: Empirical Evidence from the Visegrad Countries

The Effect of Bank Competition on the Cost of Credit: Empirical Evidence from the Visegrad Countries

Bank Competition and the Effects of Macroprudential Policy on Procyclicality of Lending

Despite the extensive debate on the effects of bank competition on risk-taking and procyclicality, there is no evidence of its role in the effects of macroprudential policy on loans’ growth and on the sensitivity of lending to the business cycle. We contribute to the literature by investigating the impact of bank competition on the effects of individual macroprudential tools in a sample covering over 70,000 bank-level observations in 109 countries from 2004 to 2015. Our results are in line with the competition-fragility hypothesis and suggest that increased market power is associated with enhanced loans’ growth in countries in which macroprudential policy is effective in reducing credit growth and with decreased credit growth for instruments that are not effective in diminishing lending. We also find support for the view that increased market power in the banking sector helps to achieve reduced sensitivity of lending to the business cycle in countries that apply cyclical macroprudential instruments due to increased risk-taking in the banking sector. Moreover, we show that, for countries in which macroprudential policy is associated with reduced procyclicality of lending, some degree of market power is beneficial for bank lending, as it tames the excessive countercyclicality of credit.

Bank Competition and Firm Credit Availability: Firm-Bank Evidence From Europe

We examine the impact of bank competition on firms' access to credit using a large panel of 900 banks matched to almost 60.000 firms across the euro area over the period 2010-2016. Results provide empirical support for the market power hypothesis whereby low inter-bank competition worsens firms' credit conditions. Specifically, we find that higher bank market power is associated with lower short and long-term bank credit, higher reliance on trade credit and higher funding costs for corporate borrowers. Furthermore, the effect of bank competition is heterogeneous across firms and banks. On the one hand, high bank market power is especially detrimental for small and opaque firms, suggesting that low competition exacerbates the financial constraint of borrowers most exposed to information problems. On the other hand, the reduction in credit availability associated with high market power is attenuated for firms that borrow from small and local community banks, a finding consistent with the information hypothesis, whereby low competition increases banks’ incentive to supply relationship loans. On balance, however, the predominance of medium-large commercial banks in our sample determines that the overall effect of low inter-bank competition on credit conditions is unequivocally adverse for most firms, i.e. the market power effect outweighs the information effect. This evidence contributes to previous research on bank competition, firms’ credit constraint and relationship lending, and has implications for competition policy. Indeed, with respect to the prospect of greater banking consolidation in the European Union, our results suggest that considerations of efficiency and financial stability should be weighed against the potential negative consequences in terms of firms’ access to credit.

A reexamination on the effect of bank competition on bank non-performing loans

ABSTRACTThis article examines whether competition in the deposit and loan markets results in a more stable or fragile banking industry. Following the assumption that deposit and loan competitions are not separable, a simple equilibrium model is developed. Then, using the aggregate time-series data of Federal Deposit Insurance Corporation (FDIC)-insured financial institutions, we estimate the generalized VAR model of deposit rate (DR), interest margin between the loan and DRs, and non-performing loan ratio. Our results support the competition–fragility hypothesis.

Effect of Bank Competition on Financial Stability: Empirical Evidence from Nepal

<p>There are two hypotheses about the relationship between competition and financial stability in the banking system: “competition-fragility” view argues that competition makes banks more likely totake excessive risks, thereby leading to fragility, while “competition-stability” view suggests that higherinterest rates in less competitive environments may cause borrowers to take higher risks,resulting in higher probability of non-performing loans and a more fragile system. This paper empirically examines the impact of competition on Nepalese banking system employing annual data of commercial banks from 1999 to 2012 period using fixed effects panel data model. The study period represents the era of rapid growth in financial institutions in Nepal. The HHI and n-bank concentration ratios are used as measure of competition while Z-index and nonperforming loans ratioare used as proxies of financial stability. The effects of macroeconomic factors and bank specific indicators are also taken into account. The results reveal that there is apositive relationship between greater banking competition and financial stability in Nepal, supporting the “competition-stability” view. Competition in banking sector is found to result in decrease in credit risk and contribute for financial stability. Mixed results have been achieved incase of the impact of bank competition on overall stability. The findings indicate that both higher concentration and higher competition are detrimental for stability. Hence, policymakers should facilitate further consolidation in the financial industry, however, it should be ensured that excessive consolidation doesn’t result in an environment that hinders competition. In addition,besides competition level in the banking system, macroeconomic situation of the country is found to be an important determinant of banking system stability.</p><p><em> </em><strong><em>Economic Literature</em></strong><em>, </em>Vol. XIII August 2016, page 19-31</p>

Bank competition and the cost of debt: the role of state ownership and firm size

ABSTRACTThe argument on the puzzling relationship between bank competition and the cost of debt remains inconclusive as the effects of state ownership and firm size are intertwined. We find that bank competition is negatively associated with the cost of debt and observe that the negative effect of bank competition is stronger for state-owned enterprises (SOEs) and weaker for large-sized enterprises. Our findings accord with the market power hypothesis. State ownership strengthens the negative impact of bank competition on the cost of debt, but firm size tends to weaken it. SOEs and large-sized enterprises are associated with a lower cost of debt compared to non-SOEs and small- and medium-sized enterprises, respectively.

Does bank competition reduce cost of credit? Cross-country evidence from Europe

Abstract Despite the extensive debate on the effects of bank competition on economic welfare and growth, only a handful of single-country studies deal with the impact of bank competition on the cost of credit. We contribute to the literature by investigating the impact of bank competition on the cost of credit in a cross-country setting. Using a panel of firms from 20 European countries covering the period 2001–2011, we consider a broad set of measures of bank competition, including two structural measures (Herfindahl–Hirschman index and CR5), and two non-structural indicators (Lerner index and H-statistic). We find that bank competition increases the cost of credit and observe that the positive influence of bank competition is stronger for smaller companies. Our findings accord with the information hypothesis, whereby a lack of competition incentivizes banks to invest in soft information and conversely increased competition raises the cost of credit. This positive impact of bank competition is however influenced by the institutional and economic framework, as well as by the crisis.