Effects of main bank switching on new business bankruptcy

This paper examines the effects of main bank switching on the probability of bankruptcy of new small businesses using a propensity score matching estimation approach. We use a unique firm-level dataset of approximately 1,000 small and medium-sized enterprises (SMEs) incorporated in Japan; these SMEs are young and unlisted just after incorporation. We find that switching main bank relationships increases the probability of firm bankruptcy. In addition, the result holds only when the relationship between the firm and its main bank is terminated. Specifically, the probability of bankruptcy increases when firms switch their main banks to financial institutions with which they have not previously transacted, and when the ex-post main banks are not affiliated financial institutions of their ex-ante main banks. These results may be because such switching worsens the financial condition of client firms, and thus, it leads to bankruptcy.     

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

This 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.     

The impact of bank competition and concentration on industrial growth

This paper studies whether bank competition affects growth of non-banking industries. We find that non-cooperative bank competition and stability promote industrial growth robustly. Bank concentration may also affect growth positively; the latter effect increases for higher levels of competition.     

On intrabrand and interbrand competition: The strategic role of fees and royalties

We examine oligopolistic markets with both intrabrand and interbrand competition. We characterize equilibrium contracts involving a royalty (or wholesale price) and a fee when each upstream firm contracts with multiple downstream firms. Royalties control competition between own downstream firms at the expense of making them passive against rivals. When the number of downstream firms is endogenous, each upstream firm chooses to have only one downstream firm. This result is in sharp contrast to previous literature where competitors benefit by having a larger number of independent downstream firms under only fixed fee payments. We discuss why allowing upstream firms to charge per-unit payments in addition to fixed fees dramatically alters their strategic incentives.     

A test of the impact of mergers on bank competition

We propose a new test to evaluate the impact of horizontal mergers on competition in the banking industry. The test is designed to be applied ex ante to potential mergers while being parsimonious in terms of data, as it only uses information on branches in local markets. The test is a counterfactual exercise based on a two‐stage model where banks compete in branching and interest rates and requires comparing the estimated degree of competition in the status quo, where branching networks by banks are those actually observed, with a counterfactual scenario, where the branching network of the new entity is the sum of the branches of the banks involved in the horizontal merger. The statistical difference between the two estimated measures of competition quantifies the impact of the merger. We apply our test to French and Italian mergers.     

Bank competition, financial reform, and institutions: The importance of being developed

In this paper, I estimate the degree of market power at the bank-level for 84 banking systems worldwide. Subsequently, I analyze the sources of bank competition, placing emphasis on the impact of financial reform and the quality of institutions. I find that financial liberalization policies reduce the market power of banks in developed countries with advanced institutions. In contrast, banking competition does not improve at the same pace in countries with weaker institutions and a lower level of institutional development. The results hold across a wide array of identification tests and estimation methods. The main policy implication to be drawn is that a certain level of institutional development is a precondition for the success of reforms aimed at enhancing the competition and efficiency of banking markets.     

The effects of information on strategic investment and welfare

Summary. The paper analyses the influence of uncertainty and competition on the strategic considerations of a firm’s investment decision, where the firm receives imperfect signals about the profitability of an investment project. We find a preemptive or an attrition equilibrium depending on a trade-off between first and second mover advantages. We show that welfare can be negatively affected by decreasing uncertainty, i.e. more and/or better information. Furthermore, simulations indicate that duopoly leads to higher welfare than monopoly if there are few and relatively non-informative signals, whereas the opposite holds if there are many and relatively informative signals.Received: 13 May 2004, Revised: 22 March 2005, JEL Classification Numbers: C61, D43, D81.Jacco J. J. Thijssen: Correspondence toDolf Talman is acknowledged for many inspiring discussions and meticulous proof-reading. Jan Boone, Thomas Sparla, participants in the workshop on “Recent Topics in Real Options Valuation”, July 2002, Krems, Austria, and an anonymous referee are thanked for helpful comments. The usual disclaimer applies.     

When vagueness induces indirect competition: strategic incompleteness of contracts

Summary. A class of employment contracts entailing production targets and consequent rewards is studied. In a nondiscriminatory environment, a principal hiring many agents faces the problem of writing a common contract which induces the highest possible effort from each one of his agents. While a very high target may get the best out of highly skilled agents, low skilled ones tend to shirk. On the other hand, although low targets make every agent put positive effort, there are efficiency losses from the high skilled agents. Also, in such environments the principal often has better information regarding the skills of all his agents than what each agent has regarding the rest of the agents at work. We show that if skills of agents are sufficiently close, the informed principal earns strictly higher profits by offering incomplete contracts as against being specific, as incomplete contracts reduce flow of information and induce indirect competition amongst agents. Received: May 19, 2000; revised version: August 28, 2001     

Product diversification and bank risk: evidence from South Asian banking institutions

ABSTRACT

We investigate whether the product diversification activities of South Asian banking institutions have led to an increase or decrease in their solvency and profit risks. Using the data of five countries – India, Bangladesh, Nepal, Pakistan and Sri Lanka – for the period 2000–2016, we analyse the effect of both income and assets diversification activities on the Z-score and SDs of ROA (Return on Assets) and ROE Return on Equity). Among income diversification activities, securities trading income has a significant positive influence on bank risk while other categories have no influence. With respect to assets diversification, non-interest-bearing assets and loans given to government were found to have a significant positive influence on bank risk, while mortgage loans and non-classified loans have opposite influences. However, the impacts of securities trading income and loans given to the government are mainly confined to private sector banks and state-owned banks, respectively. We also uncover some country-specific diversification influences on the above relationships.     

Contagion and competitive effects of plan confirmation of reorganization filings: Evidence from the Taiwan Stock Market

This paper aims to examine the intra-industry effects of confirmation of a reorganization plan. Using unique Taiwanese data on announcements of reorganization confirmation, I find evidence that such announcements elicit positive stock price reactions for the announcing firms and negative stock price reactions for other firms within the same industry. Specifically, negative competitive effects dominate positive contagion effects for industry rivals in the context of the announcement of a reorganization confirmation. Moreover, a hybrid neuro-fuzzy model is constructed, where five industry- and firm-level inputs are considered, to investigate which rivals enhance their position and which do not. Results show that my model is consistent and stable, and is good at classifying both contagion- and competitive-effect candidates.     

软件"标准锁定"竞争博弈分析

运用博弈论,本文首先分析软件“标准锁定”竞争中双方所采取的“新标准策略”,指出新标准之争的核心是创新度之争;然后分析“标准锁定”竞争中的“兼容策略”,得出在位的厂商一般不会采取兼容策略,小企业要比大企业更具实现兼容策略动力等结论。     

Measuring bank competition under binding interest rate regulation: the case of China

Many empirical studies suggest that financial reform promoted bank competition in most mature and emerging economies. However, some earlier studies that adopted conventional approaches to measure competition have concluded that bank competition in China declined during the past decade, despite progressive reforms implemented since the 1980s. We show that this apparent contradiction is the result of flawed measurement. Conventional indicators such as the Lerner index and Panzar–Rosse H-statistic fail to measure competition in Chinese loan markets properly due to the system of interest rate regulation. By contrast, the profit elasticity (PE) approach does not suffer from these shortcomings. Using balance sheet information for a large sample of banks operating in China during 1996–2008, we show that competition actually increased in the past decade when the PE indicator is used.     

Redistributive taxation and the household: the case of individual filings

In this paper I look at the tax treatment of households under individual filings and characterise the efficiency properties of an income tax schedule that redistributes from rich to poor households. Because tax liabilities are determined on individual incomes but the decision to earn those incomes is made at the household level, tax liable members of the same household can side trade leisure for net income with one another, and such side trade enables them to carry out tax arbitrage. I analyse the problem for a two-class economy both with and without perfect assortative mating. The main conclusion is that the prevention of tax arbitrage imposes structure on the graduation of the tax schedule.     

The effects of stringent capital requirements on large financial institutions

Journal of Regulatory Economics - With the growing size of the interbank financial market, it is often argued that capital regulations for large wholesale banks should be more stringent than for...     

Separating complements: the effects of competition and quality leadership

The literature on the tragedy of the anticommons typically suggests that producers of complementary goods should integrate themselves. Recent decisions by the antitrust authorities seem however to indicate that there exists a tradeoff between the “tragedy” and the lack of competition characterizing an integrated market structure. In this paper we analyze such tradeoff in oligopolistic complementary markets when products are vertically differentiated. We show that quality leadership plays a crucial role. When there is a quality leader, forcing divestitures or prohibiting mergers, thus increasing competition, lowers prices and enhances consumer surplus. However, when quality leadership is shared, “disintegrating” firms may lead to higher prices. In this case, concerns about the tragedy of the anticommons are well posed in antitrust decisions.     

The competition effects of the Single Market in Europe

The reduction in trade barriers in Europe through the Single Market Programme (SMP) was intended to increase competition in European markets, and hence welfare and efficiency. The paper examines how the SMP has affected trade patterns and what can be learnt from this regarding the impact on competitive behaviour. Combining an econometric and computable general equilibrium methodology, it is argued that (1) the SMP has indeed had a strong impact on competitive behaviour; (2) the extent of the impact depends both on changes in the intensity of competition as well as on changes in the nature of competitive interaction; (3) while all economies experience potentially large welfare gains from the SMP, it is the smaller economies that experience the larger gains, but this in turn suggests that they experience a greater degree of restructuring.     

Commodity taxation and imperfect competition : A note on the effects of entry

This paper looks at the effects of allowing the number of firms to vary in Seade's model of oligopoly and taxation. We show that the normative and positive consequences of a specific commodity tax are affected by entry in significant ways.     

Analysis of price competition and strategic implications for heterogeneous market structure

This paper examines strategic competition behavior in heterogeneous market structure where both conventional offline and online firms coexist in equilibrium and draws strategic implications with some remarks on welfare. Research on the price competition between conventional offline and online firms has been done through empirical approaches; however, the results are conflicting. This paper reconciles the existing conflicting empirical findings on price levels between conventional offline and online firms through a theoretical approach. We find that as the online market matures, prices in both conventional and online firms drop, and the price in the online firm can be higher than that in a conventional offline firm. Furthermore, if convenience associated with the online increases, the online price tends to exceed the conventional offline price.