THE ADJUSTED MARKET POWER, COMPETITION, AND PERFORMANCE: ISLAMIC VS CONVENTIONAL BANKS

Mudeer Ahmed Khattak (), Mohsin Ali (), Noureen A. Khan () and Fawad Ahmad ()
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Mudeer Ahmed Khattak: Iqra University Islamabad, Pakistan
Mohsin Ali: Taylor’s University, Malaysia
Noureen A. Khan: Iqra University Islamabad, Pakistan
Fawad Ahmad: School of Business Studies, Institute of Business Administration, Pakistan

Journal of Islamic Monetary Economics and Finance, 2022, vol. 8, issue 4, 577-598

Abstract: This study explores the relationship between competition and performance in a dual banking setting. More specifically, we compare whether using the Traditional Lerner index (TLI) the efficiency-adjusted Lerner index (EALI) would yield different conclusions. We take data from 2008 to 2020 and take Malaysia as a case study. Considering the nature of the dataset and the variables within, we employ the system Generalized Method of Moments. Our findings reveal contradictory results when market power is measured differently. Based on the overall sample, the models using the adjusted market power is supportive of the ‘competition-stability view’ while the models with TLI report evidence in favor of the ‘competition-fragility view.’ The Islamic banks’ results support the ‘competition-fragility view’ when competition is measured with the efficiency-adjusted Lerner index (EALI) and the ‘competition-stability view’ when measured with the TLI. These findings are robust to different econometric estimators and carry important policy implications.

Keywords: Competition; Risk-adjusted performance; Efficiency; Lerner index; GMM (search for similar items in EconPapers)
JEL-codes: G20 G28 G32 (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:idn:jimfjn:v:8:y:2022:i:4e:p:577-598

DOI: 10.21098/jimf.v8i4.1532

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