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Bank consolidation and competitiveness: Empirical evidence from the Korean banking industry

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  • Shin, Dong Jin
  • Kim, Brian H.S.

Abstract

The Korean government consolidated several banks following the Asian Financial Crisis of 1997–1998 to stabilize the financial market and to improve international competitiveness. This process has brought sound capital reserves, assets and profitability to the banking industry. However, due to the resulting increase in market concentration, this process has also produced concerns about the monopolistic and oligopolistic power of the banks. Recently, the growing concern within the government is the weakening of bank competition due to the sharp increase in market concentration. This study reviews and examines the status of bank consolidation and the competitive structure of the banking industry. The degree of competitiveness in the banking industry is analyzed using the Panzar and Rosse model with a non-structural approach and data from 1992 to 2007 (before the beginning of the 2008–2009 Global Financial Crisis). This time span is divided into a pre- and a post-bank consolidation period. The estimation results indicate that monopolistic competition in the market exists but that the competitiveness of the banks has improved with the increased market concentration. This finding contradicts previous beliefs regarding the increased risk and lower competition derived from a concentrated financial system.

Suggested Citation

  • Shin, Dong Jin & Kim, Brian H.S., 2013. "Bank consolidation and competitiveness: Empirical evidence from the Korean banking industry," Journal of Asian Economics, Elsevier, vol. 24(C), pages 41-50.
    • Handle: RePEc:eee:asieco:v:24:y:2013:i:c:p:41-50
    DOI: 10.1016/j.asieco.2012.07.004
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    References listed on IDEAS

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    2. Fangyuan Guan & Chuanzhe Liu & Fangming Xie & Huiying Chen, 2019. "Evaluation of the Competitiveness of China’s Commercial Banks Based on the G-CAMELS Evaluation System," Sustainability, MDPI, vol. 11(6), pages 1-24, March.
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    More about this item

    Keywords

    Bank competition; Bank consolidation; Monopolistic competition;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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