The Impact of Market Concentration on Bank Risk-Taking: Evidence from a Panel Threshold Model

Rim Ben Abdesslem (), Halim Dabbou and Mohamed Imen Gallali
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Rim Ben Abdesslem: University of Sousse
Halim Dabbou: University of Sousse
Mohamed Imen Gallali: Univ.Manouba, ESCT

Journal of the Knowledge Economy, 2023, vol. 14, issue 4, No 24, 4170-4194

Abstract: Abstract This study investigates the presence of a non-linear relationship between market concentration and bank risk-taking using a balanced dataset of 78 European commercial banks during the period 2006 to 2016. In order to test the hypothesis of non-linearity, this study applies the threshold estimation technique developed by Hansen (1999). We choose the non-performing loans ratio, the loan loss provision ratio to measure credit risk, and the cat-nonfat to proxy liquidity risk. Our main findings are twofold. The outcome of our analysis indicates that the threshold effect indeed exists. Moreover, our results suggest that there is a significant positive relationship between market concentration and bank credit risk. This positive impact is diminished when the level of market concentration is above a certain threshold. Overall, this study finds evidence that banks’ risk-taking behavior varies under different levels of market concentration. The results are robust under additional tests. These findings have strong implications for regulators.

Keywords: Market concentration; Credit risk; Liquidity risk; Panel threshold model; G21; C23; D40 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s13132-022-01028-4

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