Market Power and Risk-Taking of Banks: Some Semiparametric Evidence from Emerging Economies

38 Pages Posted: 1 Feb 2018 Last revised: 17 Oct 2019

See all articles by Bang Nam Jeon

Bang Nam Jeon

Drexel University - Department of Economics & International Business

Ji Wu

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management; Pennsylvania State University Harrisburg

Mengmeng Guo

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management

Minghua Chen

Southwestern University of Finance and Economics - Research Institute of Economics and Management

Date Written: January 24, 2018

Abstract

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

Jeon, Bang Nam and Wu, Ji and Guo, Mengmeng and Chen, Minghua, Market Power and Risk-Taking of Banks: Some Semiparametric Evidence from Emerging Economies (January 24, 2018). Available at SSRN: https://ssrn.com/abstract=3109112 or http://dx.doi.org/10.2139/ssrn.3109112

Bang Nam Jeon (Contact Author)

Drexel University - Department of Economics & International Business ( email )

3141 Chestnut St.
Philadelphia, PA 19104
United States

Ji Wu

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management ( email )

55 Guanghuacun St
Chengdu, Sichuan 610074
China

Pennsylvania State University Harrisburg ( email )

777 West Harrisburg Pike
Middletown, PA 17057
United States

Mengmeng Guo

Southwestern University of Finance and Economics (SWUFE) - Research Institute of Economics & Management ( email )

55 Guanghuacun Street
Chengdu, Sichuan 610074
China

Minghua Chen

Southwestern University of Finance and Economics - Research Institute of Economics and Management ( email )

Gezhi Building 1201
555 Liutai Revenue, Wenjiang District
Chengdu, Sichuan 610074
China

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