, Volume 39, Issue 1-2, pp 105-124
Date: 25 Sep 2007

Consolidation and Competition in Emerging Market: An Empirical Test for Malaysian Banking Industry

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Abstract

This paper investigates the effect of bank consolidation on market structure and competition in Malaysian banking industry during the years of 1998–2005. The study evaluates the degree of competition using H-statistic proposed by Panzar and Rosse (1987 Testing for monopoly equilibrium. J Ind Econ 35:443–456). The estimated H-statistics are positive ranging from 0.53 to 0.81 and the Wald test for the market structure for monopoly or perfect competition is rejected. The results imply that the financial institutions in Malaysia earned their revenue in the condition of monopolistic competition with the traditional interest-based market is significantly less competitive than the overall market. The evidence is however insufficient to show that there is an increase in competition due to a change in the market structure. Thus, the findings suggest that additional competition policy is needed to ensure competition in the Malaysian banking market in view of further consolidation in the banking sector.