Competition in banking: A disequilibrium approach |
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Authors: | John Goddard John OS Wilson |
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Institution: | aBangor Business School, Bangor University, Bangor, Gwynedd LL57 2DG, United Kingdom;bSchool of Management, University of St Andrews, The Gateway, North Haugh, St Andrews, Fife KY16 9SS, United Kingdom |
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Abstract: | The Rosse–Panzar revenue test for competitive conditions in banking is based on observation of the impact on bank revenue of variation in factor input prices. We identify the implications for the H-statistic of misspecification bias in the revenue equation, arising when adjustment towards market equilibrium is partial and not instantaneous. In simulations, fixed effects estimation produces a measured H-statistic that is severely biased towards zero. Empirical results for the banking sectors of the Group of Seven (G7) countries corroborate our principal finding, that a dynamic formulation of the revenue equation is required for accurate identification of the H-statistic. |
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Keywords: | Banking Competition Revenue test Dynamic panel estimation |
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