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How Do Individuals Choose Banks? An Application to Household Level Data from Turkey

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  • Ardic, Oya Pinar
  • Yuzereroglu, Uygar

Abstract

This paper uses a multinomial probit model to analyze individuals' choice of banks based on the types of banking services they use, their own characteristics, and their own perceptions about important factors in banking. Previous studies on this topic, which are limited in number, concentrate on the U.S. where financial markets are deep. This analysis uses a unique individual level data set from a nation-wide survey implemented after the 2001 crisis in Turkey, of which one major component was bank failures. Hence, it provides the first set of evidence on the topic in an emerging market context. The study groups banks into three categories: public banks, large private banks and small private banks, among which the latter is perceived to be the potentially risky group. Investigating individuals' choice among these three types, the paper uncovers that while individuals tend to prefer small private banks on the basis of high interest rates, they tend to avoid them on the basis of trust. However, higher branch density and closeness negatively affect the choice of small private banks. Additionally, individual's choice of public banks as opposed to large private banks seems to have been positively influenced mostly by being older, being retired, receiving salary/pension, and valuing special services for farmers and craftsmen while it seems to have been negatively influenced by the use of certain services, valuing friendliness of the staff, and living in more developed regions where there is variety in terms of the financial institutions.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 6096.

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Date of creation: 08 Nov 2007
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Handle: RePEc:pra:mprapa:6096

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Keywords: Multinomial probit; banking sector; bank choice; household survey; Turkey;

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  1. Kivilcim Metin-Ozcan & Ebru Voyvoda & A. Erinc Yeldan, 2000. "Dynamics of Macroeconomic Adjustment in a Globalized Developing Economy: Growth, Accumulation and Distribution, Turkey 1969-1998," Working Papers 2004, Economic Research Forum, revised Feb 2000.
  2. Mustafa Ismihan & Kivilcim Metin-Ozcan & Aysit Tansel, 2005. "The role of macroeconomic instability in public and private capital accumulation and growth: the case of Turkey 1963-1999," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 37(2), pages 239-251.
  3. Astrid A. Dick, 2002. "Demand estimation and consumer welfare in the banking industry," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2002-58, Board of Governors of the Federal Reserve System (U.S.).
  4. Faruk Selcuk & Ramazan Gencay, 2001. "Overnight Borrowing, Interest Rates and Extreme Value Theory," Departmental Working Papers, Bilkent University, Department of Economics 0103, Bilkent University, Department of Economics.
  5. Gaston Gelos & Alessandro Prati & Oya Celasun, 2003. "Would "Cold Turkey" Work in Turkey?," IMF Working Papers 03/49, International Monetary Fund.
  6. Oya Pınar Ardıc & Faruk Selcuk, 2006. "The dynamics of a newly floating exchange rate: the Turkish case," Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 38(8), pages 931-941.
  7. Robert M. Adams & Kenneth P. Brevoort & Elizabeth K. Kiser, 2005. "Who competes with whom? the case of depository institutions," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2005-03, Board of Governors of the Federal Reserve System (U.S.).
  8. Fry, Joseph N, et al, 1973. "Customer Loyalty to Banks: A Longitudinal Study," The Journal of Business, University of Chicago Press, vol. 46(4), pages 517-25, October.
  9. Boczar, Gregory E, 1978. "Competition between Banks and Finance Companies: A Cross Section Study of Personal Loan Debtors," Journal of Finance, American Finance Association, American Finance Association, vol. 33(1), pages 245-58, March.
  10. C. Emre Alper, 2001. "The Turkish Liquidity Crisis of 2000: What Went Wrong..," Working Papers 2001/11, Bogazici University, Department of Economics.
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