Noman, A.H.M. and Chan, S.G. and Isa, C.R. (2017) Does competition improve financial stability of the banking sector in ASEAN countries? An empirical analysis. PLoS ONE, 12 (5). e0176546. ISSN 1932-6203, DOI https://doi.org/10.1371/journal.pone.0176546.
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Abstract
This study examines the influence of competition on the financial stability of the commercial banks of Association of Southeast Asian Nation (ASEAN) over the 1990 to 2014 period. Panzar-Rosse H-statistic, Lerner index and Herfindahl-Hirschman Index (HHI) are used as measures of competition, while Z-score, non-performing loan (NPL) ratio and equity ratio are used as measures of financial stability. Two-step system Generalized Method of Moments (GMM) estimates demonstrate that competition measured by H-statistic is positively related to Z-score and equity ratio, and negatively related to non-performing loan ratio. Conversely, market power measured by Lerner index is negatively related to Z-score and equity ratio and positively related to NPL ratio. These results strongly support the competition-stability view for ASEAN banks. We also capture the non-linear relationship between competition and financial stability by incorporating a quadratic term of competition in our models. The results show that the coefficient of the quadratic term of H-statistic is negative for the Z-score model given a positive coefficient of the linear term in the same model. These results support the non-linear relationship between competition and financial stability of the banking sector. The study contains significant policy implications for improving the financial stability of the commercial banks.
| Item Type: | Article |
|---|---|
| Funders: | University of Malaya: UMRG research grant (RP001C-13SBS) |
| Uncontrolled Keywords: | Asia, Southeastern; Banking, Personal; Economic Competition; Empirical Research |
| Subjects: | H Social Sciences > HF Commerce H Social Sciences > HF Commerce > Business |
| Divisions: | Faculty of Business and Economics |
| Depositing User: | Ms. Juhaida Abd Rahim |
| Date Deposited: | 04 Sep 2018 02:39 |
| Last Modified: | 04 Sep 2018 02:39 |
| URI: | http://eprints.um.edu.my/id/eprint/19072 |
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