Market power and risk-taking of banks: Some semiparametric evidence from emerging economies |
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| Affiliation: | 1. Research Institute of Economics and Management, Collaborative Innovation Center of Financial Security, Southwestern University of Finance and Economics, Chengdu, China;2. Research Institute of Economics and Management, Southwestern University of Finance and Economics, Chengdu, China;3. School of Economics, LeBow College of Business, Drexel University, Philadelphia, PA, USA;1. Ono Academic College, 104 Tzahal St., Kiryat Ono 55000, Israel;2. Ruppin Academic Center, Emek Hefer, Israel;1. Universidade Católica de Brasília, SGAN 916 Módulo B Avenida W5, Brasília, DF, Brazil;2. Department of Statistics, Purdue University, 250 N. University Street, West Lafayette, IN, USA;3. FGV/EPGE — Escola Brasileira de Economia e Finanças, Graduate School of Economics, Praia de Botafogo 190, Rio de Janeiro, RJ, Brazil;1. School of Economics, Finance and Marketing, RMIT University, 445 Swanston Street, Melbourne, Victoria 3001, Australia;2. Department of Banking and Finance, Monash University, Caulfield Campus, Caulfield East, Victoria 3145, Australia |
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| Abstract: | We investigate the impact of market power of banks on their risk-taking. Appling bank-level data from 35 emerging economies during the period of 2000–2014 to our semiparametric model of the market power-bank risk nexus with the Bayesian inference, we present consistent evidence that there is a significant nonlinear relationship between market power and risk-taking of banks. Bank stability is found bolstered with increasing market power, but this relationship tends to weaken and even reverse as banks' market power grow further over a threshold level. |
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