How Bank Market Power and Diversification Affect Bank Stability? Evidence From Indonesia

Diyan Lestari, Andi Nurhikmah Daeng Cora and Edwin Arojado Balila

A chapter in Macroeconomic Risk and Growth in the Southeast Asian Countries: Insight from Indonesia, 2023, vol. 33A, pp 47-59 from Emerald Group Publishing Limited

Abstract: After the global financial crisis, many countries deregulated their banking sectors. The banking sector has become the major funding supplier in most emerging countries. Bank in Indonesia has provided an essential role as an intermediary institution in matching up surplus and deficit parties with a relatively concentrated market structure. Moreover, banks should innovate and diversify to provide excellent products and services to their customers and win the market. More diversified banks are expected to have better performance and more resilience, especially during a crisis. This study examines the relationship among bank market power, diversification, and bank stability of listed bank companies in Indonesia from 2008 to 2020. This study employs a two-step system GMM to deal with potential endogeneity. This study finds that banks’ market power and diversification affect bank stability, and the presence of crisis encourages banks to be more prudent. The result of this study provides insightful implications for academics and policy-makers.

Keywords: Market power; diversification; stability; bank; crisis; banking competition; G1; G2; G21 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eme:isetez:s1571-03862023000033a004

DOI: 10.1108/S1571-03862023000033A004

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