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The Effect of Cross-Industry Ownership on Pricing: Evidence from Bank-Pension Fund Common Ownership in Chile

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  • Luis Antonio Ahumada
  • Nicola Cetorelli

Abstract

We employ daily data from the Chilean banking industry from 1994 to 2001 to estimate the impact of cross-industry ownership structure within financial conglomerates on the pricing behavior of deposit and lending operations of banking institutions. Controlling for bank specific fixed effects, and for bank and market characteristics, we test whether banks with a pension fund affiliation had overall different pricing strategies with respect to non-affiliated banks, whether these banks display a different response to monetary policy changes and whether they reacted differently during the 1998 liquidity shock to the Chilean economy. The evidence suggests that banks with pension fund affiliation display a broader deposit and loan base and enjoy higher interest rate spreads, but they seem to react similarly to monetary policy changes with respect to banks that have no affiliation to pension funds. Finally, the evidence collected for the period around the liquidity shock indicates that banks with pension fund affiliation enjoyed some degree of insulation from market events, attracting a larger share of funds at the expense of other banks and posting higher spreads while those of other banks were shrinking.

Suggested Citation

  • Luis Antonio Ahumada & Nicola Cetorelli, 2003. "The Effect of Cross-Industry Ownership on Pricing: Evidence from Bank-Pension Fund Common Ownership in Chile," Working Papers Central Bank of Chile 230, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:230
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    1. Berger, Allen N & Hannan, Timothy H, 1989. "The Price-Concentration Relationship in Banking," The Review of Economics and Statistics, MIT Press, vol. 71(2), pages 291-299, May.
    2. Fernando Lefort & Eduardo Walker, 2000. "Ownership And Capital Structure Of Chilean Conglomerates:Facts And Hypotheses For Governance," Abante, Escuela de Administracion. Pontificia Universidad Católica de Chile., vol. 3(1), pages 3-27.
    3. Hannan, Timothy H & Berger, Allen N, 1991. "The Rigidity of Prices: Evidence from the Banking Industry," American Economic Review, American Economic Association, vol. 81(4), pages 938-945, September.
    4. Rodrigo Fuentes & Alejandro Jara & Klaus Schmidt-Hebbel & Matías Tapia & Erika Arraño, 2003. "Efectos de la Nominalización de la Política Monetaria en Chile," Working Papers Central Bank of Chile 197, Central Bank of Chile.
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