Ownership Concentration and Competition in Banking Markets
Alexandra Lai () and
Staff Working Papers from Bank of Canada
Many countries prohibit large shareholdings in their domestic banks. The authors examine whether such a restriction restrains competition in a duopolistic loan market. Blockholders may influence managers' output decisions by choosing capital structure, as in Brander and Lewis (1986). For the blockholder, debt has an additional benefit: it "disciplines" a manager by reducing the amount of free cash flow from which the manager can divert funds. A larger blockholder can exert more control. The authors show that an economy with blockholders often leads to a more competitive banking sector. Hence, a restriction on the size of blockholdings has anti-competitive results.
Keywords: Financial institutions; Financial services; Financial system regulation and policies (search for similar items in EconPapers)
JEL-codes: G21 G28 G32 L10 (search for similar items in EconPapers)
Pages: 37 pages
New Economics Papers: this item is included in nep-ban, nep-com, nep-fin and nep-fmk
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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:06-7
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