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Multimarket Competition and Profitability: Evidence from Ukrainian banking

Tho Pham, Oleksandr Talavera and Junhong Yang

No 2018-02, Working Papers from Swansea University, School of Management

Abstract: This paper examines the impact of non-price competition, indicated by multimarket contacts, on bank performance. Using a unique data set of Ukrainian banks’ branch locations, we construct three measures of multimarket linkages. We find that banks with a higher level of multimarket contacts are more likely to have higher financial performance. The findings support the mutual forbearance hypothesis: when banks compete in multiple markets, they have incentives to cooperate instead of competing aggressively. This cooperative incentive is induced by the familiarity and the similarity among multimarket competitors. The positive effect of multimarket competition on bank profitability is stronger when banks interact in more competitive markets. However, the anti-competitive effect of multimarket contacts is lessened following an exogenous shock to banks' branch networks. Banks that were more exposed to the shock experience worsened competitive positions and no longer benefited from multimarket contacts.

Keywords: Banking; Multimarket competition; Multimarket contact; Mutual forbearance hypothesis; Profitability; Difference-in-differences; Political conflict. (search for similar items in EconPapers)
JEL-codes: G21 L11 L25 L40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cis, nep-com and nep-eff
Date: 2018-01-25
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https://rahwebdav.swan.ac.uk/repec/pdf/WP2018-02.pdf First version, 2018 (application/pdf)

Related works:
Working Paper: Multimarket Competition and Profitability: Evidence from Ukrainian banking (2017) Downloads
Working Paper: Multimarket Competition and Profitability: Evidence from Ukrainian banking (2016) Downloads
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