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Banking Competition and Efficiency: A Micro-Data Analysis on the Czech Banking Industry

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  • Anca Pruteanu-Podpiera

    ()
    (Czech National Bank, Prague, Czech Republic.)

  • Laurent Weill

    ()
    (Institut d'Etudes Politiques, Universit� Robert Schuman, 47 avenue de la Foret Noire, Strasbourg 67000, France.)

  • Franziska Schobert

    ()
    (Deutsche Bundesbank, Frankfurt, Germany.)

Abstract

Banking competition is expected to provide welfare gains by reducing monopoly rents and cost inefficiencies, favouring a reduction of loan rates and then an increase in investment. These expected gains are a major issue for transition countries in which bank credit represents the largest source of external finance for companies. With the use of quarterly data for Czech banks, this paper aims to estimate the effects of banking competition in the Czech Republic. First, we measure the level and evolution of banking competition between 1994 and 2005. Competition is measured by the Lerner index on the loan market, using data on loan prices. We find no improvement in banking competition during the transition period. Second, we investigate the relationship and causality between competition and efficiency. We perform a Granger-causality-type analysis that supports negative causality only running from competition to efficiency. Therefore, our results reject the intuitive ‘quiet life’ hypothesis and indicate a negative relationship between competition and efficiency in banking. Comparative Economic Studies (2008) 50, 253–273. doi:10.1057/palgrave.ces.8100248

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Comparative Economic Studies.

Volume (Year): 50 (2008)
Issue (Month): 2 (June)
Pages: 253-273

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Handle: RePEc:pal:compes:v:50:y:2008:i:2:p:253-273

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Cited by:
  1. Lensink, Robert & Meesters, Aljar & Naaborg, Ilko, 2008. "Bank efficiency and foreign ownership: Do good institutions matter?," Journal of Banking & Finance, Elsevier, Elsevier, vol. 32(5), pages 834-844, May.
  2. Horvath, Roman & Seidler, Jakub & Weill, Laurent, 2013. "How bank competition influence liquidity creation," BOFIT Discussion Papers, Bank of Finland, Institute for Economies in Transition 16/2013, Bank of Finland, Institute for Economies in Transition.
  3. Horváth, Roman & Seidler, Jakub & Weill, Laurent, 2012. "Bank capital and liquidity creation: Granger-causality evidence," Working Paper Series, European Central Bank 1497, European Central Bank.
  4. Stavarek, Daniel & Repkova, Iveta, 2011. "Estimation of the competitive conditions in the Czech banking sector," MPRA Paper 30720, University Library of Munich, Germany.
  5. Fang, Yiwei & Hasan, Iftekhar & Marton, Katherin & Waisman, Maya, 2014. "Bank valuation in new EU member countries," Economic Systems, Elsevier, Elsevier, vol. 38(1), pages 55-72.
  6. Cândida Ferreira, 2013. "Bank market concentration and bank efficiency in the European Union: a panel Granger causality approach," International Economics and Economic Policy, Springer, Springer, vol. 10(3), pages 365-391, September.
  7. Fungáčová, Zuzana & Pessarossi, Pierre & Weill, Laurent, 2013. "Is bank competition detrimental to efficiency? Evidence from China," China Economic Review, Elsevier, Elsevier, vol. 27(C), pages 121-134.
  8. Alin Marius Andrieş & Bogdan Căpraru, 2012. "Competition and efficiency in EU27 banking systems," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, Baltic International Centre for Economic Policy Studies, vol. 12(1), pages 41-60, July.
  9. Duygun, Meryem & Sena, Vania & Shaban, Mohamed, 2013. "Schumpeterian competition and efficiency among commercial banks," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(12), pages 5176-5185.
  10. Alena Bicakova & Kamil Dybczak & Ales Krejdl & Jiri Slacalek & Michal Slavik, 2007. "CNB Economic Research Bulletin: Fiscal Policy and its Sustainability," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, Czech National Bank, Research Department, edition 2, volume 5, number rb05/2 edited by Ian Babetskii & Vladimir Bezdek, August.
  11. Mamatzakis, E & kalyvas, a, 2013. "Regulations, Economic Freedom and Bank Performance: Evidence from the EU-10 Economies," MPRA Paper 51878, University Library of Munich, Germany.
  12. Fang, Yiwei & Hasan, Iftekhar & Marton, Katherin, 2011. "Bank efficiency in transition economies: recent evidence from South-Eastern Europe," Research Discussion Papers, Bank of Finland 5/2011, Bank of Finland.

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