Market Power, Types of Ownership and Bank Income Diversification: Cases of Asian Countries

Valentino Robertho, Buddi Wibowo

Abstract

This study aims to analyze the effects of market power and type of ownership on bank’s income diversification in Indonesia, Malaysia, the Philippines, Thailand, and China. Banks diversifies their source of income to stabilize profitability level. Bank’s market power is a critical factor which affect its income diversification efforts. This study uses Lerner Index as a proxy for banks’ market power. By using a sample of 80 banks in five countries from 2012 to 2016 and operating Fixed Effect Model and Generalized Least Square, the result shows that banks with greater market power earn more non-interest income, except in the Philippines. Also, government ownership is proven to heighten the relation between market power and income diversification, with consistent results shown in each subsamples. Foreign ownership also heighten the relation between market power and income diversification, except in Thailand.

Keywords

Income Diversification; Market Power; Non-Interest Income; Types of Ownership.

Full Text:

PDF

References

Adzobu, L. D., Agbloyor, E. K & Aboagye, A. 2017. The Effect of Loan Portfolio Diversification on Banks’ Risks and Return: Evidence from an Emerging Market. Managerial Finance. 43 (11): 1274-1291.

Ahamed, M. M. 2017. Asset Quality, Non-interest Income and Bank Profitability: Evidence from Indian Banks. Economic Modelling. 63: 1-14.

Alhassan, A. L. 2015. Income Diversification and Bank Efficiency in an Emerging Market. Managerial Finance. 41 (12): 1318-1335.

Berger, A. N & Hannan, T. H. 1989. The Price-Concentration Relationship in Banking. Review of Economic Statistics. 71(2): 291–299.

Berger, A. N., Klapper, L & Turk-Ariss, R. 2009. Bank Competition and Financial Stability. Journal of Financial Services Research. 35 (2): 99-118.

Brissimis, S. N & Delis, M. D. 2011. Bank-level estimates of market power. European Journal of Operational Research. 212 (3): 508–517.

Carvalho, D. 2014. The Real Effects of Government-Owned Banks: Evidence from an Emerging Market. Journal of Finance. 69 (2): 577–609

Hafidiyah, M & Trinugroho, I. 2016. Revenue Diversification, Performance and Bank Risk: Evidence from Indonesia. Jurnal Dinamika Manajemen. 7 (2): 139-148.

Hidayat, W. Y., Kakinaka, M & Miyamoto, H. 2012. Bank Risk and Non-Interest Income Activities in The Indonesian Banking Industry. Journal of Asian Economics. 23 (4): 335-343.

Khan, M. S.,Scheule, H & Wu, E. 2017. Funding Liquidity and Bank Risk Taking. Journal of Banking and Finance. 82: 203-216

Lee, E. J. 2017. Intra-and Inter-religional Portfolio Diversification Strategies Under Regional Market Integration: Evidence from US Global Banks. International Review of Financial Analysis. 54: 1-22.

Lepetit, L., Nys, E., Rous, P & Tarazi, A. 2008. The Expansion of Services in European Banking: Implications For Loan Pricing And Interest Margins. Journal of Banking and Finance. 32 (11): 2325–2335.

Lerner, A.P. 1934. The Concept of Monopoly and The Measurement of Monopoly Power. Review of Economics Studies. 1 (3): 157–175.

Lin, K. L.,Doan, A. T & Doong, S. C. 2016. Changes in Ownership Structure and Bank Efficiency in Asian Developing Countries: The Role of Financial Freedom. International Review of Economic and Finance. 43: 19-34.

Maudos, J & Guevara, J. F. 2007. The Cost of Market Power in Banking: Social Welfare Loss Vs. Cost Inefficiency. Journal of Banking and Finance. 31 (7): 2103–2125.

Meslier, C., Tacneng, R & Tarazis, A. 2014. Is Bank Income Diversification Beneficial? Evidence From an Emerging Economy. Journal of International Financial Markets, Institutions and Money. 31(1): 97-126

Nguyen, M., Skully, M & Perera, S. 2012. Market Power, Revenue Diversification and Bank Stability: Evidence From Selected South Asian Countries. Journal of International Financial Market, Institution & Money. 22 (4): 897–912.

Nguyen, T. P. T & Nghiem, S. H. 2016. Market Concentration, Diversification and Bank Performance in China and India: An Application of the two-stage Approach with Double Bootstrap. Managerial Finance. 42 (10): 980-998.

Nguyen, M., Perera, S & Skully, M. 2016. Bank Market Power, Ownership, Regional Presence and Revenue Diversification: Evidence From Africa. Emerging Markets Review. 27:36-62.

Ozili, P. K & Uadiale, O. 2017. Ownership Concentration and Bank Profitability. Future Business Journal. 3 (2): 159-171.

Pennathur, A. K., Subrahmanyam, V & ishwasrao, S. (2012). Income Diversification and Risk: Does Ownership Matter? An Empirical Explanation of Indian Banks. Journal of Banking & Finance. 36: 2203-2215.

Samanta, I. G. 2017. On the Optimality of Bank Competition Policy. International Review of Financial Analysis. 54: 39-53.

Wibowo, B. 2016. Stabilitas Bank, Tingkat Persaingan Antar Bank dan Diversifikasi Sumber Pendapatan: Analisis Per Kelompok Bank di Indonesia. Jurnal Manajemen Teknologi. 15 (2): 172-195.

Williams, B. 2016. The Impat of Non-interest Income on Bank Risk in Australia. Journal of Banking and Finance. 73: 16-37.

Williams, B & Prather, L. 2010. Bank Risk and Return: the Impact of Bank Non‐Interest Income. International Journal of Managerial Finance. 6 (3): 220-244.


View Counter: Abstract - 100 and PDF - 109

Refbacks

  • There are currently no refbacks.