Bank competition, risk taking and productive efficiency: Evidence from Nigeria's banking reform experiments

Victor Murinde and Tianshu Zhao

No 2009-23, Stirling Economics Discussion Papers from University of Stirling, Division of Economics

Abstract: We propose a three-stage procedure for investigating the interrelationships among bank competition, risk taking and efficiency. The procedure is applied to Nigeria's banking reforms (1993-2008). Stage I measures bank productive efficiency, using Data Envelopment Analysis, and the evolution of bank competition, using Conjectural Variations (CV) methods. Stage II uses the CV estimates to test whether regulatory reforms influence bank competition. Stage III investigates the impact of the reforms and concomitant changes in competition on bank behaviour. The evidence suggests that deregulation and prudential re-regulation influence bank risk taking and bank productive efficiency directly (direct impact) and via their impact on competition (indirect impact). Further, it is found that as competition increases, excessive risk taking decreases and efficiency increases. Overall, the evidence affirms policies that foster bank competition, at least in the Nigerian context.

Keywords: bank competition; bank efficiency; risk-taking; Nigeria (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-afr, nep-com and nep-eff
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Citations: View citations in EconPapers (2)

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