EFFECT OF INTER-INDUSTRY COMPETITION AND FINANCIAL FREEDOM ON COMPETITIVENESS OF COMMERCIAL BANKING SECTOR

Champika Liyanagamage
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Champika Liyanagamage: Faculty of Management Studies, Open University of Sri Lanka

Studii Financiare (Financial Studies), 2021, vol. 25, issue 1, 30-47

Abstract: This paper provides some interesting insight into the impact of financial freedom and inter-industry competition on commercial banking sector competition in Sri Lanka. The study used a broader set of panel data and employed Panzar-Rosse approach to estimate the degree of bank competition. The size of the country's stock market capitalization and non- banking financial sector performance were used to measure inter- industry competition, whereas financial freedom index was used to measure the freedom of financial institution to contest in the market. The sample covered the whole commercial banking sector which includes 25 banks over the period from 1996 to 2018. Surprisingly, the results did not provide evidence for direct impact of financial freedom on bank competition in the country. However, study found a strong evidence for positive implications of non-banking sector performance on bank competition. The stock market performance is found to be negatively associating with bank competition. Hence formulating policies enabling competitiveness within financial market could be suggestive as it would certainly cause positive implications on the banking sector competitiveness.

Keywords: bank competition; contestability; financial freedom; inter-industry competition; H- statistics (search for similar items in EconPapers)
JEL-codes: C51 E32 G21 G28 (search for similar items in EconPapers)
Date: 2021
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