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Ownership Concentration and Competition in Banking Markets

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Author Info
Alexandra Lai
Raphael Solomon

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Abstract

Many countries prohibit large shareholdings in their domestic banks. The authors examine whether such a restriction restrains competition in a duopolistic loan market. Blockholders may influence managers' output decisions by choosing capital structure, as in Brander and Lewis (1986). For the blockholder, debt has an additional benefit: it "disciplines" a manager by reducing the amount of free cash flow from which the manager can divert funds. A larger blockholder can exert more control. The authors show that an economy with blockholders often leads to a more competitive banking sector. Hence, a restriction on the size of blockholdings has anti-competitive results.

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File URL: http://www.bankofcanada.ca/en/res/wp/2006/wp06-7.pdf
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Paper provided by Bank of Canada in its series Working Papers with number 06-7.

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Length: 37 pages
Date of creation: 2006
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Handle: RePEc:bca:bocawp:06-7

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Related research
Keywords: Financial institutions; Financial services; Financial system regulation and policies;

Find related papers by JEL classification:
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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    Other versions:
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Pursey Heugens & Marc Essen & J. Oosterhout, 2009. "Meta-analyzing ownership concentration and firm performance in Asia: Towards a more fine-grained understanding," Asia Pacific Journal of Management, Springer, vol. 26(3), pages 481-512, September. [Downloadable!] (restricted)
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