Author
Listed:
- Changjun Zheng
- Md Mohiuddin Chowdhury
- Anupam Das Gupta
- Md Nazmul Islam
Abstract
This study aims to investigate the simultaneous relationship between bank risk and capital, specifically examining how competition and ownership jointly influence this relationship. We employed the two-step system generalized method of moments to address concerns regarding endogeneity and unobserved heteroscedasticity. Based on data from 44 commercial banks in Bangladesh from 2010 to 2021, our findings reveal several key insights: (I) There is a significant non-linear bidirectional relationship between bank risk and capital: capital exhibits a U-shaped effect on risk, while risk has a non-linear negative impact on capital; (II) in highly contested markets, banks hold higher levels of capital, and heightened competition reduces the risk appetite of commercial banks; while less competition has the opposite effect; (III) private and Islamic commercial banks are more risk-averse than state-owned and conventional ones, and (IV) Private and Islamic banks with strong capital positions in a competitive market can better manage risks than state-owned and conventional banks. However, maintaining higher capital ratios in competitive environments is more challenging for state-owned and Islamic banks than private-owned and conventional commercial banks. These results align with the moral hazard hypothesis, competition fragility hypothesis, and the political view of state ownership. Significant insights from the study will fuel the regulators in shaping policies and regulations surrounding emerging countries like Bangladesh, particularly regarding risk, capital, competition, and ownership policies.
Suggested Citation
Changjun Zheng & Md Mohiuddin Chowdhury & Anupam Das Gupta & Md Nazmul Islam, 2024.
"Effects of competition and ownership on the simultaneous relationship between bank risk and capital: Evidence from an emerging economy of Bangladesh,"
PLOS ONE, Public Library of Science, vol. 19(12), pages 1-35, December.
Handle:
RePEc:plo:pone00:0311428
DOI: 10.1371/journal.pone.0311428
Download full text from publisher
Corrections
All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:plo:pone00:0311428. See general information about how to correct material in RePEc.
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
We have no bibliographic references for this item. You can help adding them by using this form .
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: plosone (email available below). General contact details of provider: https://journals.plos.org/plosone/ .
Please note that corrections may take a couple of weeks to filter through
the various RePEc services.