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The Impact of Bank Competition and Institutional Quality on Bank Stability: International Evidence

Author

Listed:
  • Yudaruddin Rizky

    (Faculty of Economics and Business, Mulawarman University, Samarinda, Indonesia Mulawarman)

  • Ulfah Yana

    (Faculty of Economics and Business, Mulawarman University, Samarinda, Indonesia Mulawarman)

  • Lesmana Dadang

    (Research and Development Agency, East Kutai, Indonesia)

Abstract

This study aims to determine the effects of bank competition and institutional quality on bank stability. It also intends to examine the impact of competition and institutional quality on bank stability. The System Generalized Method of Moments (SYS-GMM) is used to analyze the sample, which comprises 127 countries selected from 79 developing and 48 developed countries from 1993 to 2017, based on the Global Financial Development and Worldwide Governance Indicators. The results show that competition has a negative effect, especially in developed countries. On the other hand, the institutional quality index significantly and positively influences bank stability. Furthermore, competition and institutional quality significantly affect bank stability, particularly in developed countries. This implies that increasing institutional quality encourages higher competition, improving bank stability.

Suggested Citation

  • Yudaruddin Rizky & Ulfah Yana & Lesmana Dadang, 2024. "The Impact of Bank Competition and Institutional Quality on Bank Stability: International Evidence," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 4, pages 767-780, December.
    • Handle: RePEc:nwe:eajour:y:2024:i:4:p:767-780
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    References listed on IDEAS

    as
    1. Felisitas Defung & Rizky Yudaruddin, 2022. "Economic freedom on bank stability and risk-taking in emerging economy: Indonesian case study," Cogent Business & Management, Taylor & Francis Journals, vol. 9(1), pages 2112816-211, December.
    2. Delis, Manthos D., 2012. "Bank competition, financial reform, and institutions: The importance of being developed," Journal of Development Economics, Elsevier, vol. 97(2), pages 450-465.
    3. Michael Adusei & Caroline Elliott, 2015. "Bank profitability: Insights from the rural banking industry in Ghana," Cogent Economics & Finance, Taylor & Francis Journals, vol. 3(1), pages 1078270-107, December.
    4. Beck, Thorsten & Demirgüç-Kunt, Asli & Merrouche, Ouarda, 2013. "Islamic vs. conventional banking: Business model, efficiency and stability," Journal of Banking & Finance, Elsevier, vol. 37(2), pages 433-447.
    5. Danisman, Gamze Ozturk & Demirel, Pelin, 2019. "Bank risk-taking in developed countries: The influence of market power and bank regulations," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 59(C), pages 202-217.
    6. Windmeijer, Frank, 2005. "A finite sample correction for the variance of linear efficient two-step GMM estimators," Journal of Econometrics, Elsevier, vol. 126(1), pages 25-51, May.
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    More about this item

    Keywords

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    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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