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The Impact of Market Concentration on Bank Risk-Taking: Evidence from a Panel Threshold Model

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  • Rim Ben Abdesslem

    (University of Sousse
    Univ.Manouba, ESCT)

  • Halim Dabbou

    (University of Sousse
    Univ.Manouba, ESCT)

  • Mohamed Imen Gallali

    (Univ.Manouba, ESCT)

Abstract

This study investigates the presence of a non-linear relationship between market concentration and bank risk-taking using a balanced dataset of 78 European commercial banks during the period 2006 to 2016. In order to test the hypothesis of non-linearity, this study applies the threshold estimation technique developed by Hansen (1999). We choose the non-performing loans ratio, the loan loss provision ratio to measure credit risk, and the cat-nonfat to proxy liquidity risk. Our main findings are twofold. The outcome of our analysis indicates that the threshold effect indeed exists. Moreover, our results suggest that there is a significant positive relationship between market concentration and bank credit risk. This positive impact is diminished when the level of market concentration is above a certain threshold. Overall, this study finds evidence that banks’ risk-taking behavior varies under different levels of market concentration. The results are robust under additional tests. These findings have strong implications for regulators.

Suggested Citation

  • Rim Ben Abdesslem & Halim Dabbou & Mohamed Imen Gallali, 2023. "The Impact of Market Concentration on Bank Risk-Taking: Evidence from a Panel Threshold Model," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 14(4), pages 4170-4194, December.
    • Handle: RePEc:spr:jknowl:v:14:y:2023:i:4:d:10.1007_s13132-022-01028-4
    DOI: 10.1007/s13132-022-01028-4
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