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Competition–banking stability: the moderating role of government intervention quality in North African countries

Author

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  • Nadia Basty
  • Ines Ghazouani

Abstract

Purpose - This study investigates how bank competition affects financial stability and whether government intervention contributes to shaping this relationship in North African countries. Design/methodology/approach - A review of the literature on the subject was conducted, combined with an empirical analysis that used a two-step system generalized method of moments (GMM) and a sample of 45 banks operating in North African countries over the period 2005–2019. Findings - The findings reveal a quadratic relationship between competition and banking stability in North African countries. Competition–stability view and competition–fragility view could be applied at the same time for North African banks. Additionally, in this context, results highlight a negative impact of government intervention on financial stability in a competitive financial sector. North African banks operating in a high government intervention quality environment tend to engage in high-risk investments. Robustness checks with alternative measures of competition and banking stability also show consistent results. Originality/value - To the authors’ knowledge, this is the first time that the North African context has been explored to determine the role of the quality of government intervention in the relationship between competition and banking system fragility. This paper seeks to cover the shadow field in existing literature through further new information. Thus, it contributes to the emerging market banking literature by showing that both high and low levels of competition can improve financial stability in North African countries. Moreover, it expands its contribution by displaying the moderator effect of intervention quality on the bank competition–stability relationship.

Suggested Citation

  • Nadia Basty & Ines Ghazouani, 2023. "Competition–banking stability: the moderating role of government intervention quality in North African countries," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 24(2), pages 244-268, February.
  • Handle: RePEc:eme:jrfpps:jrf-06-2022-0166
    DOI: 10.1108/JRF-06-2022-0166
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    Cited by:

    1. Rahat, Birjees & Nguyen, Pascal, 2023. "Does ESG performance impact credit portfolios? Evidence from lending to mineral resource firms in emerging markets," Resources Policy, Elsevier, vol. 85(PB).
    2. Xie, Xin & Mirza, Nawazish & Umar, Muhammad & Ji, Xiaoman, 2024. "Covid-19 and market discipline: Evidence from the banking sector in emerging markets," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 612-621.
    3. Shan, Shan & Mirza, Nawazish & Umar, Muhammad & Hasnaoui, Amir, 2023. "The nexus of sustainable development, blue financing, digitalization, and financial intermediation," Technological Forecasting and Social Change, Elsevier, vol. 195(C).

    More about this item

    Keywords

    Banking stability; Competition; Intervention quality; GMM estimation; C14; C62; D4; E02; G18;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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