Market Power and Risk-Taking of Banks: Some Semiparametric Evidence from Emerging Economies
38 Pages Posted: 1 Feb 2018 Last revised: 17 Oct 2019
Date Written: January 24, 2018
We investigate the impact of market power of banks on their risk-taking, using bank-level data from 35 emerging economies during the period of 2000-2014. We set up a semiparametric model of the market power-bank risk nexus, and conduct estimation applying the Bayesian inference, which provides with consistent evidence that there is a significant nonlinear relationship between market power and risk-taking of banks. Bank stability is found bolstered with higher market power, but this relationship tends to weaken and even reverse as banks’ market power grows further over a threshold level.
Keywords: Market power, bank risk-taking, emerging economies
JEL Classification: G21; G15; D53
Suggested Citation: Suggested Citation