Market structure and power: comparative empirical evidence from a dual banking system

Rafik Harkati (), Syed Musa Alhabshi (), Salina Kassim () and Noraini Mohd Ariffin ()
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Rafik Harkati: International Islamic University Malaysia
Syed Musa Alhabshi: International Islamic University Malaysia
Salina Kassim: International Islamic University Malaysia
Noraini Mohd Ariffin: International Islamic University Malaysia

Economic Change and Restructuring, 2022, vol. 55, issue 3, No 20, 1815-1873

Abstract: Abstract Countries cautiously observe their banking sector stability by virtue of its vital repercussions. Different researchers used different measures/proxies to investigate stability and its relevance to market structure and power, and mixed evidence was presented. In a dual banking system, the influence of the market structure and power on stability is overlapped given the operation of two different types of banks side by side. This paper uses advanced Z-score (time-varying Z-score and adjusted Z-score) to extend evidence and disentangle the stability linkage between the banking sector, Islamic and conventional banking markets. Quarterly data of 41 commercial banks operating in the Malaysian dual banking sector for the period 2011q4-2020q2 are obtained from FitchConnect database. The study applies the Corrected Least Square Dummy Variable (LSDVC) estimator in the investigation given its superior performance over other commonly used techniques. Diverse important results and conclusions are observed and drawn as in which manner structure and power within the banking sector at large, Islamic and conventional banking markets influence stability of each other, and to which extent the Islamic market is distinguishable and free from the influence of conventional market features. Policy makers and researchers need to be mindful of the used stability proxy and its dynamism.

Keywords: Rolling Z-score; Adjusted Z-score; Stability; Risk-taking; Banking market structure; Banking market power; Dual banking system (search for similar items in EconPapers)
JEL-codes: C33 G21 G34 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s10644-021-09369-x

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