Asymmetric effects of bank market power on liquid creation: a panel quantile regression approach

Qilong Cao, Jinglei Li and Hongru Zhang

Applied Economics, 2023, vol. 55, issue 23, 2660-2675

Abstract: This study explores the relationship between market power and bank liquidity creation using panel quantile regression methods. Based on annual data from 187 banks between 2007 and 2019, we reveal that the effect of market power on bank liquidity creation varies in different parts of the liquidity creation distribution. Quantile regression results indicate no statistically significant relationship between market power and low-liquidity creation, and the relationship is significantly positive for middle-liquidity creation. However, there is a significant negative association between market power and high-liquidity creation. Multiple robustness analyses confirm our results. Our research contributes to the literature by providing empirical evidence that the market power effect is not homogeneous and presenting an interpretation of the debate in prior studies.

Date: 2023
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DOI: 10.1080/00036846.2022.2103509

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