The impact of bank competition and concentration on bank risk-taking behavior and stability: Evidence from GCC countries

This paper presents a comprehensive assessment of the impact of competition on bank fragility pre and post financial crisis period in the GCC banking market as measured by bank risk-taking behavior and bank stability during the period 1998–2016. Our results indicate that a higher level of bank competition and the greater degree of concentration adds to financial fragility. The findings further shows that during the 2008 crisis, lower bank competition maintain the stability of GCC banks. We also find that lower level of competition and lower concentration in the banking market increases the risk-taking behavior of the low capitalized, low liquid and small banks which add to fragility in the banking system. Our findings suggest that countries with greater capital stringency, greater supervisory power, greater market discipline, and private monitoring, with explicit deposit insurance schemes, higher shareholder protection, and higher legal efficiency decrease banks’ risk-taking and increase their stability. We also find that greater regulatory restrictions and higher creditor protection decrease banks’ stability and increase risk in concerned countries. We find support for both competition-fragility and competition-stability hypotheses in the GCC banking market. The results also confirm that the use of a single measure of competition is insufficient to assess the role of competition in banking stability.     

Media Coverage and the Stock Market Valuation of TARP Participating Banks‡

We examine the impact of media coverage of the Capital Purchase Program (CPP) under the Troubled Assets Relief Program on the equity market valuation of participating bank holding companies (CPP banks). We document substantial negative coverage of the CPP and its participants over the five quarters following the program's initiation. We find that the extent of negative media coverage about the CPP exerted substantial downward pressure on the stock returns of CPP banks, decreasing their valuation relative to bank holding companies not participating in the program. We show that our findings cannot be explained by differences in the banks’ financial viability at the CPP's initiation, new information about their performance being released to the market after the CPP's initiation or preceding stock returns causing the negative media coverage. Our findings highlight the importance of investor sentiment, as reflected by the tone of media coverage, in banks’ valuation during a period of high uncertainty in financial markets.     

银行业改革、赶超与开放——基于Malmquist TFP指数的实证分析

为评估近年来中国国有银行改革、城市商业银行赶超与银行业对外全面开放5年来外资银行效率的变化,主要采取"中介法",利用2005～2010年数据对中国本土和外资银行Malmquist TFP指数及其组成部分进行了测算分解和实证分析。研究表明:改革促进了中国银行业效率的提高;城市商业银行的"赶超"战略显著提升了效率;中国本土银行的纯技术效率亟待改善;中国银行业对外全面开放后,外资银行的全要素生产率有所提高,但规模效率和技术进步有待改进;股权/资产比率等因素降低了银行效率。     

The Influence of Managerial Ownership on Bank Market Value,Performance, and Risk: Evidence from Banks Listed on the Stoxx Global Index

We follow agency theory to assess the influence of managerial ownership on the market value, performance, and risk of 123 listed banks in 23 countries included in the STOXX Global Index in 2007 and 2010. After controlling for bank characteristics, regulatory restrictions, and macroeconomic conditions, our findings show a positive relation between managerial ownership and both market value (Tobin's Q) and performance (ROA and ROE). Moreover, we find a negative relation between managerial ownership and risk (EDF, NPL/L, and Z‐SCORE). Bank market value and performance is a non‐linear, inverse U‐shaped function of managerial ownership. The negative relation between managerial ownership and bank risk is also non‐linear and U‐shaped. Our results remain robust to reverse causality. In their effort to immunize the global financial system from systemic risks, central banks and practitioners should find our results relevant for regulation purposes.     

A STRATEGIC PERSPECTIVE OF BANK FINANCIAL CONGLOMERATES IN LONDON AFTER THE CRASH

The deregulation of financial markets has led to severe challenges for bank management and banking strategy. Investment banking is a sector that has experienced important and well-publicized changes. London's celebrated ‘Big Bang’ helped to stimulate new banking strategies that were characterized by the formation of so-called ‘bank financial conglomerates’. The October 1987 stock market crash, however, has precipitated strategic and organizational crises for many of these banks active in securities business and capital market products. This article re-examines investment banking strategies in London and some of the lessons associated with the crash experiences.     

Locational concentration and institutional diversification: Evidence from foreign direct investments in the banking industry

We study locational concentration and institutional diversification strategies in the context of foreign direct investment based on Dunning’s eclectic paradigm in the banking industry. We report that locational concentration and institutional diversification strategies can enhance multinational bank return independently and simultaneously. Further, we document that locational concentration increases operational risk, while an institutional diversification strategy reduces this risk for a multinational bank. Our findings suggest that even when concentrating in a limited number of geographic locations, it is preferable to select more institutionally dissimilar countries. Overall, we conclude that multinational banks can achieve better performance by focusing on either locational concentration or institutional diversification, or a combination of both.     

The effects of accounting regulations on stock valuation and volatility: Evidence from the banking industry

Banking regulators and market participants learn from price signals in the stock market (e.g., Flannery, Journal of Money, Credit and Banking 30: 273, 1998). Therefore, the system becomes more secure and developed as stock prices become more informative about banks’ financial conditions. Using a sample that includes major banks from 35 countries, this study investigates how accounting regulations affect bank stock valuation and volatility. The evidence suggests that bank stocks have higher valuation and lower volatility in countries that strictly regulate the quality of external audits and financial statement transparency. This study presents a comprehensive picture of the effects of bank accounting regulations on the stock market.     

Does bond market development enhance the banking sector’s efficiency in resource allocation? Industry-level evidence from Korea

Korea’s financial system used to be bank-based, with banks playing the leading role in financing corporations. As highlighted by Park et al. (2019), however, bond markets have developed rapidly in Korea and other Asian countries. The corporate bond market competes with banks as a source of finance for large borrowers. As such, bond markets may affect banking sector operation, a process known as disintermediation. In this paper, we examine whether bond market development improves the efficiency of resource allocation in Korean bank lending. We propose two channels through which bond market development affects the efficiency of bank lending. Since the two channels have opposing effects on the efficiency of banking, the issue must be settled by empirical analysis. We find that bank loans are much less efficient than bond financing in allocating resources across industries. Furthermore, banks are particularly inefficient in resource allocation in industries that rely more on bond financing. This suggests that competition from bond financing does not improve allocative efficiency of bank loans.     

Institutions and Bank Performance: A Stochastic Frontier Analysis*

This article investigates the impact of institutions on bank efficiency and technology, using a stochastic frontier analysis of a data set of 7,959 banks across 136 countries over 10 years. The results confirm the importance of well‐developed institutions for the efficient operation of commercial banks. Furthermore, the insights reveal the impact of institutional reforms in improving bank efficiency. The results are robust to adjustments in country‐specific effects, achieved by including country dummies, as well as across different risk profiles. Moreover, they provide empirical evidence in support of the public view of the banking sector.     

Explaining the profitability of foreign banks in Shanghai

This paper uses survival analysis to examine the factors determining the time taken for branches of foreign banks in Shanghai, China to make a positive rate of return after entering that market. Particular attributes of banks including the parent bank's size, early entry and the number of branches the bank has in China are found to reduce time to profitability. Market conditions in Shanghai, captured by levels of foreign direct investment and Eurodollar interest rates, are also found to have significant effects. A number of managerial implications are drawn from the analysis in light of the greater access to the Chinese banking markets following China's accession to the WTO. To ensure long‐term profitability in Shanghai, the foreign bank needs to contain costs and risks in the new markets, formulate an effective market penetration strategy, identify appropriate customer target groups, attract businesses from firms of different countries, seek early entry and undertake more fee‐income generating businesses. Copyright © 2003 John Wiley & Sons, Ltd.     

Political Interests and the Emergence of Commercial Banking in Transition Economies*

abstract This paper examines how interactions between government agencies and banking organizations led to the emergence of commercial banking in the Czech Republic and Hungary during the 1990s. We rely on interviews with bank managers at six large banks, government officers, and experts at other organizations to learn how actions based on different political ideologies shaped the banking field. We integrate prior research on institutional change, political interest, and transition economies to describe the emergence of commercial banking. Three important problems characterized commercial banking in the two countries: the disposal of bad loans, the privatization of banks, and the establishment of banking services. We argue that the solutions to these problems based on the changing political interests of organizational actors and regulators represent the phases of institutional development in commercial banking during the 1990s. Implications of our research are discussed regarding the political perspective of organizational fields in transition economies.     

Indirect Convertibility,Equity‐Based Banking and Financial Stability

Banking reform proposals put forward in the wake of the recent financial crisis maintain that equity‐based banking would be stable and would prevent bank runs. This article argues that complementing this form of banking with an indirect convertibility monetary standard and thereby dispensing with base money would enhance financial stability further. Banks would not hold a distinctive asset (base money) that would be called upon by customers at short notice, thereby removing the possibility of bank runs. No discrepancy in value between the two sides of a bank's balance sheet would arise as its assets (securitised loans) would be marked to market. Unlike other recent contributions, the intermediation model outlined here is not ‘limited purpose’ in nature as banks would not be restricted in the form of lending activity they can pursue. Common sources of banking and financial instability – liquidity risk, solvency risk, moral hazard – would be absent.     

Multiple banking relationships,managerial ownership concentration and firm value: A simultaneous equations approach

This paper examines how the number of banking relationships affects the interaction between managerial ownership and firm performance, and sheds light on the conditions under which banking relationships play a role in alleviating shareholder–manager conflicts. Our results provide several interesting insights. We document that bank monitoring has substantial value when managers are improperly incentivized, but that it becomes less important when managers are properly incentivized. There is a substitution effect between the value-increasing benefits of managerial ownership and bank monitoring. We also find that any existing free-riding concerns from having too many banking relationships are problematical only when Tobin's Q is high and managerial ownership is high.     

An examination of the cost efficiency of banks in Taiwan and China using the metafrontier cost function

Using the stochastic metafrontier framework of Battese et al. (J Prod Anal 21:91–103, 2004), this study proposes to compare and measure the cost efficiency and cost frontier gap between the banking industry in Taiwan and China. It further identifies environmental variables that determine bank’s cost frontier gap between two countries. Data on 69 sample banks for years 2005–2009 are used in the empirical analysis and inference. The empirical results show that Taiwanese banks have in general the superior cost frontier of production, but inferior cost efficiency of operation than Chinese banks. Private banks in Taiwan have the best cost frontier, whereas foreign banks in China are most cost efficient among all banks in Taiwan and China. The empirical results also reveal that the majority of Taiwanese banks are undersized and that most banks in China are oversized. Finally, the regression results show that the financial market structure, institutional environment, and political development are significant determinants of the cost gap between the cost frontiers of banks in Taiwan and China. Therefore, programs related to changes directed toward a better bank production environment can be initiated to improve the cost technologies of banks in both Taiwan and China.     

Value-Driving Activities in Euro-Zone Banks

We develop and test accounting-based valuation models for commercial banks. We extend Begley et al.'s framework (2006) and propose a valuation model where goodwill is generated by virtually all commercial and investment banking activities. Key features of our model are: the development of a relation between future cash flows from fee income and the bank value that depends on lending, borrowing and off-balance sheet business; and the inclusion of proprietary investment and trading as value-driving activities. Empirical tests on a sample of Euro-zone banks from 1998 to 2006 provide the following evidence. Unrealised expected cash flows from fee income are the most important source of unrecorded goodwill. This is consistent with the increasing importance of revenue from the sale of financial services to banks' income. The contribution of fee income to goodwill is higher for banks with large deposits and new loans. Equity securities are a source of unrecorded goodwill, but the introduction of fair value accounting, with the adoption of the International Financial Reporting Standards (IFRS), reduces their valuation role. Yet equity securities remain positively associated with unrecorded goodwill after IFRS adoption, suggesting that the fair value standards do not fully capture market expectations about future cash flows of investment assets.     

浅析农商行流程银行建设的路径选择和框架

流程银行管理模式已成为国际银行业的主流经管模式，也正成为我国大中型商业银行改革转型的方向，为农商行的发展创新提供了借鉴和指引。本文结合农商行的优劣势及面临的机遇与挑战，分析了农商行开展流程银行建设的实施步骤和路径选择，提出了农商行流程银行建设的总体框架。     

Structural changes,competition and bank stability in Malaysia’s dual banking system

This paper assesses Malaysia’s competition landscape and its risk implications subsequent to conventional banking consolidation and Islamic banking penetration in the aftermath of the 1997/1998 Asian financial crisis. Employing a panel sample of conventional and Islamic commercial banks, it arrives at the following conclusions. First, the consolidation exercise, which has led to a significant reduction in the number of domestic commercial banks, has not stifled banking competition. Second, the paper provides empirical support for the competition-stability relationship, particularly for the conventional banking sector. Islamic banking sector risk appears to be neutral to market competition or market power, although there is limited evidence that it increases with overall market concentration. Finally, the analysis uncovers the risk-increasing effect of the Islamic banking market structure on the conventional banking sector. By contrast, conventional banking market concentration tends to reduce the credit risk of Islamic banks.     

Exploring environmental,social, and governance disclosure effects on the S&P 500 financial performance

Much of the literature measuring the relationship between environmental, social, and governance (ESG) scores and firm performance treats the score as a measure of sustainability performance. In this study, we treat a firm's ESG score as a demonstration of strategic choice in the level of transparency that results in increased firm performance as measured by Tobin's Q and return on assets. Performance differences are a result of choice moderated by the size of the firm as measured by employees and sales. We analyze 467 firms in the S&P 500 from 2009 to 2015. Applying legitimacy and stakeholder theory, we find that there is significant difference between groups with respect to disclosure and performance. The results of quartile analysis by sales, capitalization, and Tobin's Q are relevant to understand the influence that the ESG score has on financial performance. ESG influences on Tobin's Q are greatest for large firms as measured by sales, as opposed to the ESG affects on Tobin's Q and return on asset for smallest firms as measured by market capitalization.     

商业银行市场结构与绩效关系的研究综述

伴随着我国商业银行的改组与上市,商业银行市场结构发生了转变,在绩效方面也得到了较大提高,但与国外商业银行相比,我国银行业的实际绩效相对较低,在经营绩效和管理效率等方面存在亟待解决的不足之处。国外关于商业银行市场结构与绩效方面的学术研究已相当丰富,我国学者近来也在这一领域不断取得进展。本文将对国内外关于商业银行市场结构与绩效这一方面的研究成果进行简单的解释与归纳概括,希望能够为商业银行的绩效研究提供有益的参考。     

The impacts of competition and shadow banking on profitability: Evidence from the Chinese banking industry

This paper contributes to the empirical literature on banking profitability by testing the impacts of competition and shadow banking on bank profitability using a sample of 100 Chinese commercial banks over 2003–2013 with 417 and 395 observations. The current study fills the gaps in the empirical studies by examining the competition in different banking markets (i.e. deposit market, loan market and non-interest income market) in China and further evaluating their impacts on bank profitability. The findings show that the non-interest income market has a higher level of competition compared to the deposit market and loan market. It is further reported that a lower level of competition in deposit market leads to an increase in the profitability of Chinese commercial banks. Finally, the results suggest that shadow banking improves the profitability of Chinese banks.