Browse > Article
http://dx.doi.org/10.13106/jafeb.2022.vol9.no5.0377

The Impact of Competition on the Profitability and Risk-Taking of Commercial Banks in India  

RASTOGI, Shailesh (Symbiosis Institute of Business Management, Symbiosis International (Deemed) University)
KANOUJIYA, Jagjeevan (Symbiosis Institute of Business Management, Symbiosis International (Deemed) University)
BHIMAVARAPU, Venkata Mrudula (Symbiosis Institute of Business Management, Symbiosis International (Deemed) University)
GAUTAM, Rahul Singh (Symbiosis Institute of Business Management, Symbiosis International (Deemed) University)
Publication Information
The Journal of Asian Finance, Economics and Business / v.9, no.5, 2022 , pp. 377-388 More about this Journal
Abstract
The purpose of this article is to investigate the impact of competition on the performance of Indian banks. The survey includes banks from both the public and private sectors. The study will collect data for four years, from 2015 to 2019. Dynamic and static panel data are applied to estimate the association between competition and the bank's performance. Profitability and risk-taking are the performance measures used in the study. The study's main findings are that competition does not impact the banks' profitability in India. However, the findings concerning risk-taking are mixed. Therefore, it can be inferred that overall competition does not impact the banks' performance in India. Other measures of performance of the banks could have been used in the study. It is a limitation to use data of four years. Data for a much more extended period could have also been used. This is one of the few papers on the subject. Therefore, its contribution is very significant. The gap in studies on the topic of competition versus performance of the banks is veritably filled by the current study's findings.
Keywords
Competition; Profitability; Risk-taking; Efficiency; Disclosure;
Citations & Related Records
Times Cited By KSCI : 6  (Citation Analysis)
연도 인용수 순위
1 Boyd, J. H., & De Nicolo, G. (2005). The theory of bank risk-taking and competition revisited. Journal of Finance, 60(3), 1329-1343. https://doi.org/10.1111/j.1540-6261.2005.00763.x   DOI
2 Hughes, J. P., & Mester, L. J. (1993). 'A quality and risk-adjusted cost function for banks: Evidence on the "too-big-to-fail doctrine. Journal of Productivity Analysis, 4(3), 293-315. https://doi.org/10.1007/BF01073414   DOI
3 Tan, Y. (2016). The impacts of risk and competition on bank profitability in China. Journal of International Financial Markets, Institutions, and Money, 40(1), 85-110. https://doi.org/10.1016/j.intfin.2015.09.003   DOI
4 Thinh, T. Q. (2018). Factors affecting the level of financial information transparency-evidence from top 30 listed companies in Singapore, Philippines, and Vietnam. Studies in Computational Intelligence. Springer, 1035-1045. https://doi.org/10.1007/978-3-319-73150-6_74   DOI
5 Triki, T., Kouki, I., Dhaou, M. B., & Calice, P. (2017). Bank regulation and efficiency: What works for Africa? Research in International Business and Finance, 39(1), 183-205. https://doi.org/10.1016/j.ribaf.2016.07.027   DOI
6 Uchida, H., & Tsutsui, Y. (2005). Has competition in the Japanese banking sector improved? Journal of Banking and Finance, 29(2), 419-439. https://doi.org/10.1016/j.jbankfin.2004.05.013   DOI
7 Bhimavarapu, V. M., & Rastogi, S. (2020). Valuation of transparency: A systematic literature review paper. Test Engineering and Management, 83 No (5/6), 9092-9102.
8 Wanderi, R. G. (2016). Influence of corporate governance practice on financial distress among commercial banks in Kenya [Doctoral Dissertation, The University of Nairobi]. http://erepository.uonbi.ac.ke/bitstream/handle/11295/100230/Wanderi_Influence%pdf
9 Wooldridge, J. M. (2006). Introductory econometrics: A modern approach (3rd ed). New York: Thomson.
10 Arellano, M. (1987). Computing robust standard errors for within-group estimators. Oxford Bulletin of Economics and Statistics, 49(4), 431-434. https://doi.org/10.1111/j.1468-0084.1987.mp49004006.x   DOI
11 Allen, F., & Gale, D. (2004). Competition and financial stability. Journal of Money, Credit, and Banking, 36(3), 453-480. https://doi.org/10.1353/mcb.2004.0038   DOI
12 Amidjaya, P. G., & Widagdo, A. K. (2019). Sustainability reporting in Indonesian listed banks: Do corporate governance, ownership structure, and digital banking matter? Journal of Applied Accounting Research, 21(2), 231-247. https://doi.org/10.1108/JAAR-09-2018-0149   DOI
13 Arrawatia, R., Misra, A., & Dawar, V. (2015). Bank competition and efficiency: Empirical evidence from the Indian market. International Journal of Law and Management, 57(3), 217-231. https://doi.org/10.1108/IJLMA-03-2014-0029   DOI
14 Baltagi, B. H., & Raj, B. (1992). A survey of recent theoretical developments in the econometrics of panel data. Empirical Economics, 17(1), 85-109. https://doi.org/10.1007/BF01192477   DOI
15 Berger, A. N., & Humphrey, D. B. (1997). The efficiency of financial institutions: International survey and directions for future research. European Journal of Operational Research, 98(2), 175-212. https://doi.org/10.1016/S0377-2217(96)00342-6   DOI
16 Boot, A. W. A., & Thakor, A. V. (2000). Can relationship banking survive the competition? Journal of Finance, 55(2), 679-713. https://doi.org/10.1111/0022-1082.00223   DOI
17 Cetorelli, N. (2001). Competition among banks: Good or bad? Economic Perspectives-Federal Reserve Bank of Chicago, 25(2), 38-48.
18 Kuknor, S., & Rastogi, S. (2021). Determinants of profitability in Indian banks: A panel data analysis. International Journal of Modern Agriculture, 10(2), 978-986. http://www.modernjournals.com/index.php/ijma/article/view/807
19 Kasman, S., & Kasman, A. (2015). Bank competition, concentration, and financial stability in the Turkish banking industry. Economic Systems, 39(3), 502-517. https://doi.org/10.1016/j.ecosys.2014.12.003   DOI
20 Barra, C., & Zotti, R. (2017). On the relationship between bank market concentration and stability of financial institutions: Evidence from the Italian banking sector (Working Paper No MPRA. 79900). Munich, Germany: MPRA. https://mpra.ub.uni-muenchen.de/79900/1/MPRA_paper_79900.pdf
21 Fungacova, Z., & Weill, L. (2013). How market power influences bank failures: Evidence from Russia. Economics of Transition, 21(2), 301-322. https://doi.org/10.1111/ecot.12013   DOI
22 Goddard, J., Liu, H., Molyneux, P., & Wilson, J. O. S. (2011). The persistence of bank profit. Journal of Banking and Finance, 35(11), 2881-2890. https://doi.org/10.1016/j.jbankfin.2011.03.015   DOI
23 Haque, F., & Brown, K. (2017). Bank ownership, regulation, and efficiency: Perspectives from the Middle East and North Africa (MENA) Region. International Review of Economics and Finance, 47(1), 273-293. https://doi.org/10.1016/j.iref.2016.10.015   DOI
24 Turrent, G. D. C. B., & Ariza, L. R. (2012). Corporate information transparency on the Internet by listed companies in Spain (IBEX35) and Mexico (IPYC). International Journal of Digital Accounting Research, 12(1), 1-37. http://rabida.uhu.es/dspace/handle/10272/6170?locale-attribute=en
25 Elzinga, K. G., & Mills, D. E. (2011). The Lerner index of monopoly power: Origins and uses. American Economic Review, 101(3), 558-564. https://doi.org/10.1257/aer.101.3.558   DOI
26 Hamadi, H., & Awdeh, A. (2012). The determinants of bank net interest margin: Evidence from the Lebanese banking sector, journal of Money. Investment and Banking, 23(3), 85-98. https://www.mdpi.com/2071-1050/11/14/3785/pdf
27 Coccorese, P. (2014). Estimating the Lerner index for the banking industry: A stochastic frontier approach. Applied Financial Economics, 24(2), 73-88. https://doi.org/10.1080/09603107.2013.866202   DOI
28 Dietrich, A., & Wanzenried, G. (2011). Determinants of bank profitability before and during the crisis: Evidence from Switzerland. Journal of International Financial Markets, Institutions, and Money, 21(3), 307-327. https://doi.org/10.1016/j.intfin.2010.11.002   DOI
29 Srairi, S. (2019). Transparency and bank risk-taking in GCC Islamic banking. Borsa Istanbul Review, 19 No [Suppl.], 64-74. https://doi.org/10.1016/j.bir.2019.02.001   DOI
30 Tan, Y., Floros, C., & Anchor, J. (2017). The profitability of Chinese banks: Impacts of risk, competition, and efficiency. Review of Accounting and Finance, 16(1), 86-105. https://doi.org/10.1108/RAF-05-2015-0072   DOI
31 Wang, K., O, S., & Claiborne, M. C. (2008). Determinants and consequences of voluntary disclosure in an emerging market: Evidence from China. Journal of International Accounting, Auditing, and Taxation, 17(1), 14-30. https://doi.org/10.1016/j.intaccaudtax.2008.01.001   DOI
32 Baltagi, B. H., & Song, S. H. (2006). Unbalanced panel data: A survey. Statistical Papers, 47(4), 493-523. https://doi.org/10.1007/s00362-006-0304-0   DOI
33 Patil, A. C., & Rastogi, S. (2020b). Multifractal analysis of time-varying market efficiency: Implications for the adaptive market hypothesis. Test Engineering and Management, 83(May-June), 16646-16660. https://doi.org/10.111522/tem2020.10125418   DOI
34 Silva, B., Azua, D., Diaz, P., & Pizarro, V. (2008). The influence of institutional investors on the transparency of the Chilean capital market. Academia. Revista Latinoamericana de Administracion, 40(1), 54-67.
35 Ariss, R. T. (2010). On the implications of market power in banking: Evidence from developing countries. Journal of Banking and Finance, 34(4), 765-775. https://doi.org/10.1016/j.jbankfin.2009.09.004   DOI
36 Arsov, S., & Bucevska, V. (2017). Determinants of transparency and disclosure-evidence from post-transition economies. Economic Research-Ekonomska Istrazivanja, 30(1), 745-760. https://doi.org/10.1080/1331677X.2017.1314818   DOI
37 Athaley, C., Rastogi, S., Goel, A., & Bhimavarapu, V. (2020). Factors impacting Bank's performance: A literature review. Test Engineering and Management, 83(5/6), 7389-7398.
38 Nickell, S. J. (1981). Biases in dynamic models with fixed effects. Econometrica, 49(6), 1417-1426. https://doi.org/10.2307/1911408   DOI
39 Midthanpally, R. S. (2018). Banking regulation (amendment) ordinance, 2017: A resolute ordinance? Journal of Public Affairs, 18(2), e1690. https://doi.org/10.1002/pa.1690   DOI
40 Nguyen, T. M. H., Nguyen, N. T., & Nguyen, H. T. (2020). Factors affecting voluntary information disclosure on annual reports: Listed companies in ho chi MINH city stock exchange. Journal of Asian Finance, Economics, and Business, 7(3), 53-62. https://doi.org/10.13106/jafeb.2020.vol7.no3.53   DOI
41 Jimenez, G., Lopez, J. A., & Saurina, J. (2013). How does competition affect bank risk-taking? Journal of Financial Stability, 9(2), 185-195. https://doi.org/10.1016/j.jfs.2013.02.004   DOI
42 Banker, R. D., Khosla, I., & Sinha, K. K. (1998). Quality and competition. Management Science, 44(9), 1179-1192. https://doi.org/10.1287/mnsc.44.9.1179   DOI
43 Beck, T., Demirguc-Kunt, A., & Levine, R. (2006). Bank concentration, competition, and crises: First results. Journal of Banking and Finance, 30(5), 1581-1603. https://doi.org/10.1016/j.jbankfin.2005.05.010   DOI
44 Berger, A. N., Klapper, L. F., & Turk-Ariss, R. (2009). Bank competition and financial stability. Journal of Financial Services Research, 35(2), 99-118. https://doi.org/10.1007/s10693-008-0050-7   DOI
45 Hellmann, T. F., Murdock, K. C., & Stiglitz, J. E. (2000). Liberalization, moral hazard in banking, and prudential regulation: Are capital requirements enough? American Economic Review, 90(1), 147-165. https://doi.org/10.1257/aer.90.1.147   DOI
46 Hsiao, C. (2005). Why panel data? Singapore Economic Review, 50(2), 143-154. https://doi.org/10.1142/S0217590805001937   DOI
47 Keeley, M. C. (1990). Deposit insurance, risk, and market power in banking. American Economic Review, 16(9), 183-1200. https://doi.org/10.1122331/0123226140   DOI
48 Patel, S. A., & Dallas, G. S. (2002). Transparency and disclosure: Overview of methodology and study results-United states. SSRN, 1(1), 75-86. https://doi.org/10.2139/ssrn.422800   DOI
49 Niinimaki, J.-P. (2004). The effects of competition on banks' risk-taking. Journal of Economics, 81(3), 199-222. https://doi.org/10.1007/s00712-003-0027-9   DOI
50 Leitao, N. C. (2012). Bank credit and economic growth: A dynamic panel data analysis. Economic Research Guardian, 2(2), 256-267. https://doi.org/10.121311/erg.2012.2.2.256267   DOI
51 Patil, A. C., & Rastogi, S. (2020a). Multifractal analysis of market efficiency across structural breaks: Implications for the adaptive market hypothesis. Journal of Risk and Financial Management, 13(10), 1-18. https://doi.org/10.3390/jrfm13100248   DOI
52 Pham, T., Talavera, O., & Yang, J. (2020). Multimarket competition and profitability: Evidence from Ukrainian banks. Oxford Economic Papers, 72(2), 517-545. https://doi.org/10.1093/oep/gpz041   DOI
53 Agoraki, M. E. K., Delis, M. D. & Pasiouras, F. (2011). Regulations, competition, and bank risk-taking in transition countries. Journal of Financial Stability, 7(1), 38-48. https://doi.org/10.1016/j.jfs.2009.08.002   DOI
54 Aksu, M., & Kosedag, A. (2006). Transparency and disclosure scores and their determinants in the Istanbul Stock Exchange. Corporate Governance: An International Review, 14(4), 277-296. https://doi.org/10.1111/j.1467-8683.2006.00507.x   DOI
55 Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58(2), 277-297. https://doi.org/10.2307/2297968   DOI
56 Acharya, S. (1996). Charter value, minimum bank capital requirement, and deposit insurance pricing in equilibrium. Journal of Banking & Finance, 20(2), 351-375. https://doi.org/10.1016/0378-4266(94)00126-X   DOI
57 Al-Mashat, R., Bulir, A., Dincer, N. N., Hledik, T., Holub, T., Kostanyan, A., Laxton, D., Nurbekyan, A., Portillo, R., & Wang, H. (2018). 'An Index for Transparency for Inflation-Targeting Central Banks: Application to the Czech National (Working Paper No. 18/210). Washington DC: International Monetary Fund. https://www.imf.org/en/Publications/WP/Issues/2018/09/28/An-Index-for-Transparency-for-InflationTargeting-Central-Banks-Application-to-the-Czech-46192
58 Alam, N., Hamid, B. A., & Tan, D. T. (2019). Does competition make banks riskier in the dual banking system? Borsa Istanbul Review, 19(1), S34-S43. https://doi.org/10.1016/j.bir.2018.09.002   DOI
59 Allon, G., & Federgruen, A. (2007). Competition in service industries. Operations Research, 55(1), 37-55. https://doi.org/10.1287/opre.1060.0337   DOI
60 Altunbas, Y., Gardener, E. P. M., Molyneux, P., & Moore, B. (2001). Efficiency in European banking. European Economic Review, 45(10), 1931-1955. https://doi.org/10.1016/S0014-2921(00)00091-X   DOI
61 Llewellyn, D. T. (2005). Competition and profitability in European banking: Why are British banks so profitable? Economic Notes, 34(3), 279-311. https://doi.org/10.1111/j.0391-5026.2005.00152.x   DOI
62 Hossain, M. (2008). The extent of disclosure in annual reports of banking companies: The case of India. European Journal of Scientific Research, 23(4), 660-681. https://doi.org/2000.eaj.23.4.143154
63 Qizam, M. K. (2021). The impact of disclosure quality on firm performance: Empirical evidence from Indonesia. Journal of Asian Finance, Economics, and Business, 8(4), 751-762. https://doi.org/2021.jafeb.v8.n4.251   DOI
64 Rastogi, S., Gupte, R., & Meenakshi, R. (2021). A holistic perspective on bank performance using regulation, profitability, and risk-taking with a view on ownership concentration. Journal of Risk and Financial Management, 14(3), 1-19. https://doi.org/10.3390/jrfm14030111   DOI
65 Saha, A., & Ravisankar, T. S. (2000). Rating of Indian commercial banks: A DEA approach. European Journal of Operational Research, 124(1), 187-203. https://doi.org/10.1016/S0377-2217(99)00167-8   DOI
66 Bolarinwa, S. T., Obembe, O. B., & Olaniyi, C. (2019). Reexamining the determinants of bank profitability in Nigeria. Journal of Economic Studies, 46(3), 633-651. https://doi.org/10.1108/JES-09-2017-0246   DOI
67 Bolt, W., & Tieman, A. F. (2004). Banking competition, risk, and regulation. Scandinavian Journal of Economics, 106(4), 783-804. https://doi.org/10.1111/j.0347-0520.2004.00388.x   DOI
68 Brissimis, S. N., Delis, M. D., & Papanikolaou, N. I. (2008). Exploring the nexus between banking sector reform and performance: Evidence from newly acceded EU countries. Journal of Banking and Finance, 32(12), 2674-2683. https://doi.org/10.1016/j.jbankfin.2008.07.002   DOI
69 Jemric, I., & Vujcic, B. (2002). The efficiency of banks in Croatia: A DEA approach. Comparative Economic Studies, 44(2-3), 169-193. https://doi.org/10.1057/ces.2002.13   DOI
70 Kanoujiya, J., Bhimavarapu, V. M., & Rastogi, S. (2021). Banks in India: A balancing act between profitability, regulation, and NPA. Vision, 9, 72-84. https://doi.org/10.1177/09722629211034417   DOI
71 Martinez-Miera, D., & Repullo, R. (2010). Does competition reduce the risk of bank failure? Review of Financial Studies, 23(10), 3638-3664. https://doi.org/10.1093/rfs/hhq057   DOI
72 Mazumder, M. M. M., & Hossain, D. M. (2018). Research on corporate risk reporting: Current trends and future avenues. Journal of Asian Finance, Economics, and Business, 5(1), 29-41. https://doi.org/10.13106/jafeb.2018.vol5.no1.29   DOI
73 Moudud-ul-Huq, S., Halim, M. A., & Biswas, T. (2020). Competition and profitability of banks: Empirical evidence from the middle east and north African (MENA) countries. Journal of Business Administration Research, 3(2), 26-37. https://doi.org/10.30564/jbar.v3i2.1807   DOI
74 Nguyen, J. (2012). The relationship between net interest margin and non-interest income using a system estimation approach. Journal of Banking and Finance, 36(9), 2429-2437. https://doi.org/10.1016/j.jbankfin.2012.04.017   DOI
75 Nguyen, A. H., & Nguyen, L. H. (2020). Determinants of sustainability disclosure: Empirical evidence from Vietnam. Journal of Asian Finance, Economics, and Business, 7(6), 73-84. https://doi.org/10.13106/jafeb.2020.vol7.no6.073   DOI
76 Sen, S., & Sen, R. L. (2015). Impact of NPAs on bank profitability: An empirical study. Banking, finance, and accounting: Concepts, methodologies, tools, and applications. Pennsylvania: IGI Global.
77 Kiran, K. P., & Jones, T. M. (2016). Effect of nonperforming assets on the profitability of banks: A selective study. International Journal of Business and General Management, 5(2), 53-60. https://oaji.net/articles/2016/1880-1457343419.pdf
78 Kumar, S., & Kidwai, A. (2018). CSR disclosures and transparency among top Indian companies. International Journal of Indian Culture and Business Management, 16(1), 57-70. https://doi.org/10.1504/IJICBM.2018.10009217   DOI
79 Lai, S. M., Liu, C. L., & Wang, T. (2013). Increased disclosure and investment efficiency. Asia-Pacific Journal of Accounting and Economics, 21(3), 308-327. https://doi.org/10.1080/16081625.2012.741791   DOI
80 Sharma, A., Rastogi, S., & Gupta, N. (2020). Financial efficiency of Non-banking financial companies-microfinance institutions: A data envelopment analysis. Test Engineering and Management, 83(5/6), 9080-9091.
81 Singh, I., & Rastogi, S. (2020). Drivers impacting bank risk in India. Test Engineering and Management, 83(5/6), 8005-8011.
82 Solikhah, B., Wahyudin, A., & Rahmayanti, A. A. W. (2020). The extent of intellectual capital disclosure and corporate governance mechanism to increase market value. Journal of Asian Finance, Economics, and Business, 7(10), 119-128. https://doi.org/10.13106/jafeb.2020.vol7.no10.119   DOI
83 Tabak, B. M., Gomes, G. M. R., & Da Silva Medeiros, Jr., M. (2015). The impact of market power at bank-level in risk-taking: The Brazilian case. International Review of Financial Analysis, 40(C), 154-165. https://doi.org/10.1016/j.irfa.2015.05.014   DOI
84 Pinto, G., & Rastogi, S. (2019). Sectoral analysis of factors influencing dividend policy: Case of an emerging financial market. Journal of Risk and Financial Management, 12(3), 110. https://doi.org/10.3390/jrfm12030110   DOI
85 Pinto, G., Rastogi, S., Kadam, S., & Sharma, A. (2019). Bibliometric study on dividend policy. Qualitative Research in Financial Markets, 12(1), 72-95. https://doi.org/10.1108/QRFM-11-2018-0118   DOI
86 Schaeck, K., Cihak, M., & Wolfe, S. (2009). Are competitive banking systems more stable? Journal of Money, Credit, and Banking, 41(4), 711-734. https://doi.org/10.1111/j.1538-4616.2009.00228.x   DOI
87 Patil, A. C., & Rastogi, S. (2019). Time-varying price-volume relationship and adaptive market efficiency: A survey of the empirical literature. Journal of Risk and Financial Management, 12(2), 1-18. https://doi.org/10.3390/jrfm12020105   DOI
88 Anderson, T. W., & Hsiao, C. (1981). Estimation of dynamic models with error components. Journal of the American Statistical Association, 76(375), 598-606. https://doi.org/10.1080/01621459.1981.10477691   DOI
89 Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error components models. Journal of Econometrics, 68(1), 29-51. https://doi.org/10.1016/0304-4076(94)01642-D   DOI
90 Sarita, B., Zandi, G. R., & Shahabi, A. (2012). Determinants of performance in Indonesian banking: A cross-sectional and dynamic panel data analysis. International Journal of Economics and Finance Studies, 4(2), 41-55. https://sobiad.org/eJOURNALS/journal_IJEF/archieves/2012_2/buyung_sarita.pdf