The Impact of Competition on Bank Orientation and Specialization

Hans Degryse and Steven Ongena

No 4543, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: How do banks react to increased competition? Recent banking theory offers conflicting predictions about the impact of competition on bank orientation - i.e., the choice of relationship based versus transactional banking - and bank industry specialization. We empirically investigate the impact of interbank competition on bank branch orientation and specialization. We employ a unique dataset containing detailed information on bank-firm relationships and industry classification. We find that bank branches facing stiff local competition engage considerably more in relationship-based lending and specialize somewhat less in a particular industry. Our results illustrate that competition and relationships are not necessarily inimical.

Keywords: Bank orientation; Bank industry specialization; Competition; Lending relationships (search for similar items in EconPapers)
JEL-codes: G21 L11 L14 (search for similar items in EconPapers)
Date: 2004-08
New Economics Papers: this item is included in nep-com
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Working Paper: The Impact of Competition on Bank Orientation and Specialization (2003)
Working Paper: The Impact of Competition on Bank Orientation and Specialization (2003)
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