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Bank Competition And Financial Stability: Much Ado About Nothing?

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  • Diana Zigraiova
  • Tomas Havranek

Abstract

The theoretical literature gives conflicting predictions on how bank competition should affect financial stability, and dozens of researchers have attempted to evaluate the relationship empirically. We collect 598 estimates of the competition-stability nexus reported in 31 studies and analyze the literature using meta-analysis methods. We control for 35 aspects of study design and employ Bayesian model averaging to tackle the resulting model uncertainty. Our findings suggest that the definition of financial stability and bank competition used by researchers influences their results in a systematic way. The choice of data, estimation methodology, and control variables also affects the reported coefficient. We find evidence for moderate publication bias. Taken together, the estimates reported in the literature suggest little interplay between competition and stability, even when corrected for publication bias and potential misspecifications.
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  • Diana Zigraiova & Tomas Havranek, 2016. "Bank Competition And Financial Stability: Much Ado About Nothing?," Journal of Economic Surveys, Wiley Blackwell, vol. 30(5), pages 944-981, December.
  • Handle: RePEc:bla:jecsur:v:30:y:2016:i:5:p:944-981
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    Cited by:

    1. Dominika Reckova & Zuzana Irsova, 2015. "Publication Bias in Measuring Anthropogenic Climate Change," Energy & Environment, , vol. 26(5), pages 853-862, September.
    2. Havranek, Tomas & Irsova, Zuzana & Janda, Karel & Zilberman, David, 2015. "Selective reporting and the social cost of carbon," Energy Economics, Elsevier, vol. 51(C), pages 394-406.
    3. Gunby, Philip & Jin, Yinghua & Robert Reed, W., 2017. "Did FDI Really Cause Chinese Economic Growth? A Meta-Analysis," World Development, Elsevier, vol. 90(C), pages 242-255.
    4. Havranek, Tomas & Irsova, Zuzana & Vlach, Tomas, 2016. "Publication Bias in Measuring the Income Elasticity of Water Demand," MPRA Paper 75247, University Library of Munich, Germany.
    5. Leroy, Aurélien & Lucotte, Yannick, 2017. "Is there a competition-stability trade-off in European banking?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 46(C), pages 199-215.
    6. repec:wly:econjl:v::y:2017:i:605:p:f236-f265 is not listed on IDEAS
    7. Anton Astakhov & Tomas Havranek & Jiri Novak, 2017. "Firm Size and Stock Returns: A Meta-Analysis," Working Papers IES 2017/14, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jul 2017.
    8. repec:kap:annfin:v:13:y:2017:i:1:d:10.1007_s10436-016-0288-2 is not listed on IDEAS
    9. Michal Andrle & Oxana Babecka Kucharcukova & Jaromir Baxa & Jan Bruha & Peter Claeys & Jan Filacek & Jakub Mateju & Miroslav Plasil & Serhat Solmaz & Borek Vasicek, 2015. "Monetary Policy Challenges in a Low-Inflation Environment," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 13, number rb13/2 edited by Jan Babecky & Michal Franta.
    10. Havranek, Tomas & Irsova, Zuzana & Zeynalova, Olesia, 2017. "Tuition Reduces Enrollment Less Than Commonly Thought," MPRA Paper 78813, University Library of Munich, Germany.
    11. Tomas Havranek & Zuzana Irsova & Tomas Vlach, 2017. "Measuring the Income Elasticity of Water Demand: The Importance of Publication and Endogeneity Biases," Working Papers IES 2017/02, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Feb 2017.
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    13. repec:cnb:ocpubv:rb15/1 is not listed on IDEAS
    14. Jan Bruha & Jiri Polansky & Jaromir Tonner & Stanislav Tvrz & Osvald Vasicek & Jan Babecky & Kamil Galuscak & Lubomir Lizal & Diana Zigraiova, 2016. "Topics in Labour Markets," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 1, volume 14, number rb14/1 edited by Jan Babecky.
    15. Miroslav Plasil & Jakub Seidler & Petr Hlavac & Volha Audzei & Jakub Mateju & Michal Kejak & Simona Malovana & Jan Frait, 2016. "Financial Cycles and Macroprudential and Monetary Policies," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, edition 2, volume 14, number rb14/2 edited by Jan Babecky & Michal Hlavacek.
    16. Dominika Reckova & Zuzana Irsova, 2015. "Publication Bias in Measuring Climate Sensitivity," Working Papers IES 2015/14, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised May 2015.
    17. Steel, Mark F. J., 2017. "Model Averaging and its Use in Economics," MPRA Paper 81568, University Library of Munich, Germany.
    18. Alexander Erler & Horst Gischer & Bernhard Herz, 2017. "Regional Competition in US Banking – Trends and Determinants," FEMM Working Papers 170008, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
    19. M. Brei & L. Jacolin & A. Noah, 2018. "Credit risk and bank competition in Sub-Saharan Africa," Working papers 664, Banque de France.

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    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure

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