The impact of competition and bank market regulation on banks’ cost efficiency

Haiyan Yin

Journal of Multinational Financial Management, 2021, vol. 61, issue C

Abstract: With a comprehensive dataset covering 148 countries over 1995–2015, this study investigates the relationship between competition and efficiency in the banking industry. Evidence shows that bank competition is detrimental to cost efficiency, which is at variance with the intuitive “quiet life” hypothesis. The bank regulatory and institutional environment in which banks operate not only influences bank efficiency, but also affects the link between competition and efficiency. Restrictive regulations on bank activities and stringent capital requirements reduce, whereas effective supervision and information sharing of credit registries increase efficiency. The adverse impact of competition on efficiency can be mitigated or even reversed by well-implemented regulations, supervision, and information sharing mechanisms.

Keywords: Bank competition; Bank efficiency; Bank regulation; International evidence (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:mulfin:v:61:y:2021:i:c:s1042444x21000013

DOI: 10.1016/j.mulfin.2021.100677

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