Does higher bank concentration reduce the level of competition in the banking industry? Further evidence from South East Asian economies

Khan, Habib Hussain; Kutan, Ali M.; Ahmad, Rodina; Chan, Sok Gee

doi:10.1016/j.iref.2017.09.006

Cited by 30 publications

(20 citation statements)

References 77 publications

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“…The first hypothesis (the market-power hypothesis) suggests that increased concentration leads to higher market power and the ability to earn more rents. The findings of Khan, Kutan, Ahmad and Gee (2017) suggest that concentration of the banking sector discourages competition among banks. The second hypothesis (an efficient structure hypothesis) suggests that bank concentration increases competition among banks.…”

Section: Literature Reviewmentioning

confidence: 99%

Do banking sector concentration, banking sector development and equity market development influence firms’ financial flexibility? Evidence from Pakistan

Mahmood

Ahmad

Rizwan

et al. 2019

SAJBS

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Purpose The purpose of this paper is to investigate the role of banking sector concentration, banking sector development and equity market development in corporate financial flexibility (FF). Design/methodology/approach The study used annual data for the period from 1991 to 2014 to examine the relationship between banking sector concentration, banking sector development, equity market development and corporate FF; hypotheses were tested using an unbalanced panel logistic regression model. Findings The paper provides empirical insights into the relationships between macroeconomic factors and corporate FF. The results suggest a substantial change in FF across firms; banking sector concentration discourages firms from borrowing, leading to the reduction of corporate borrowing, consequently an increase in FF can be observed. Banking sector development facilitates debt financing, hence reducing FF. Equity market development also has a positive impact on FF, as it is a substitute for debt financing. Practical implications The banking sector is an important provider of capital to business entities. A concentrated banking system discourages the provision of capital to firms; hence regulators have to take appropriate measures to resolve the problem of a reduced supply of capital. Banking sector development facilitates the provision of capital; further development may reduce bank lending rates to firms. Equity market development positively affects FF; hence, firm managers can use equity financing to resume FF. By following pecking order theory, managers use internal sources to finance value-maximizing investment projects, debt and issue shares as the last choice to get financing. When borrowing capacity is depleted, managers can obtain further funds by issuing stocks. Originality/value FF is an emergent area of research in advanced countries, while in developing economies, it is in the initial stages. Little work is available in this area to find the impact of banking sector concentration, banking sector development and equity market development, therefore, this study fills this gap in the existing literature.

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Section: Literature Reviewmentioning

confidence: 99%

Do banking sector concentration, banking sector development and equity market development influence firms’ financial flexibility? Evidence from Pakistan

Mahmood

Ahmad

Rizwan

et al. 2019

SAJBS

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“…In general, the concept of efficiency leads to the idea of achieving maximum results by optimally using existing resources. Productivity in the banking industry is a significant aspect of creating sustainable financial performance (Khan et al, 2017). Therefore, the more efficient a bank is, the healthier it is and the easier it is to achieve sustainable financial performance.…”

Section: Discussionmentioning

confidence: 99%

Measuring the competition and banking efficiency level: a study at four commercial banks in Indonesia

Wahyudi

Nabella

Sari

2021

Banks and Bank Systems

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The banking sector plays a vital role in the economy of each country. Banks are required to operate in a sound, efficient, and reliable manner in order to stimulate economic growth. To achieve that, a basic framework for the Indonesian banking system has been developed, known as the Indonesian Banking Architecture (IBA) aimed at strengthening the structure and enhancing the competitiveness of the banking industry. This study aimed to analyze the level of competition, the ability, and influence of the competition on banks efficiency, so banks can maintain the performance level and provide economic growth. This study used a quantitative approach with a panel regression analysis model. The results have shown that the banking industry in Indonesia tends to be monopolistic. The character of many sellers, differentiated products, sellers freely entering and leaving the market, as well as the presence of advertisement and product quality competitions were examined. Bank competition that leads to a monopolistic market structure stimulated banks to achieve higher profits and put bank projects and financing at high risk. Competition had a negative correlation with bank efficiency because competition encourages banks to focus on profit rather than efficiency, engage in risky financing/projects, and undertake high lending activities. Moreover, four big banks in Indonesia are in the “too big to fail” position. Banking regulators in Indonesia must maintain and produce reliable and stable banks to compete globally. AcknowledgementThe authors would like to thank all those who have contributed to the completion of this article, especially the leadership of the Department of Economics and the Faculty of Economics and Business, Brawijaya University, who provided facilitation for publication in reputable international journals.

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“…Other research articles have also used this indicator to measure competition in the banking sector, however (Khan et al, 2017;Hryckiewicz and Kozlowski, 2018). The Lerner index is defined as the difference between a bank's price and the marginal cost, divided by the price.…”

Section: Appendix Measurement Of Bank Competition In Chinamentioning

confidence: 99%

Competition and Profitability: Impacts on Stability in Chinese Banking

Tan

Lau

Gözgör

2020

International Journal of the Economics of Business

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This study contributes to the banking literature by testing the joint impacts of profitability and industry environment on several types of risk (credit risk, liquidity risk, capital risk, and insolvency risk) in a sample of Chinese commercial banks over the period 2003 to 2015. The results show that a more highly developed banking sector increases the liquidity risk and credit risk of Chinese commercial banks but decreases their capital risk. It is further suggested that profitability may lead to a reduction in credit risk and insolvency risk. The findings from the current study thus have important policy implications in terms of improving stability in the Chinese banking industry.

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Does higher bank concentration reduce the level of competition in the banking industry? Further evidence from South East Asian economies

Cited by 30 publications

References 77 publications

Do banking sector concentration, banking sector development and equity market development influence firms’ financial flexibility? Evidence from Pakistan

Do banking sector concentration, banking sector development and equity market development influence firms’ financial flexibility? Evidence from Pakistan

Measuring the competition and banking efficiency level: a study at four commercial banks in Indonesia

Competition and Profitability: Impacts on Stability in Chinese Banking

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