Market competition, capital regulation and cost of financial intermediation: an empirical study on the banking sector of Bangladesh

MD. Rasel Mia

Asian Journal of Economics and Banking, 2022, vol. 7, issue 2, 251-276

Abstract: Purpose - This study aims to examine the impact of market competition, and capital regulation on the cost of financial intermediation of banks of the Bangladesh banking industry. Design/methodology/approach - This study has used a balanced panel dataset comprised of 340 firm-year observations for 34 commercial banks in the Bangladesh banking industry from 2011 to 2020. The Prais Winsten panel estimator has been used to assess the impact of market competition and capital regulation on the cost of financial intermediation of banks. Findings - Based on the regression results, this study has documented that greater market competition results in a lower cost of financial intermediation for banks. Similarly, an increase in the regulatory capital of banks increases the cost of financial intermediation of banks. The main findings of this study are found robust by using alternative proxies for the cost of financial intermediation, market competition and capital regulation. The regression results also suggest that private commercial banks tend to have a higher cost of financial intermediation than state-owned commercial banks. Research limitations/implications - The regulatory reforms should aim to foster sustainable and optimal market competition for the Bangladesh banking industry to regulate the market power of banks to reduce the cost of financial intermediation. The regulatory authority of Bangladesh should find the optimal policy measures for implementing the capital regulation in the banking industry which would reduce the cost of financial intermediation margin of banks. Originality/value - Unlike previous studies which have used structural market competition measures, this study has used non-structural market competition measures to assess the relationship between market competition and cost of financial intermediation in the Bangladesh banking industry.

Keywords: Market competition; Lerner index; H-statistic; Cost of financial intermediation (search for similar items in EconPapers)
Date: 2022
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (text/html)
https://www.emerald.com/insight/content/doi/10.110 ... d&utm_campaign=repec (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eme:ajebpp:ajeb-03-2022-0028

DOI: 10.1108/AJEB-03-2022-0028

Access Statistics for this article

More articles in Asian Journal of Economics and Banking from Emerald Group Publishing Limited
Bibliographic data for series maintained by Emerald Support ().