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The Impact of Market Concentration on Bank Risk-Taking: Evidence from a Panel Threshold Model

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Abstract

This study investigates the presence of a non-linear relationship between market concentration and bank risk-taking using a balanced dataset of 78 European commercial banks during the period 2006 to 2016. In order to test the hypothesis of non-linearity, this study applies the threshold estimation technique developed by Hansen (1999). We choose the non-performing loans ratio, the loan loss provision ratio to measure credit risk, and the cat-nonfat to proxy liquidity risk.

Our main findings are twofold. The outcome of our analysis indicates that the threshold effect indeed exists. Moreover, our results suggest that there is a significant positive relationship between market concentration and bank credit risk. This positive impact is diminished when the level of market concentration is above a certain threshold. Overall, this study finds evidence that banks’ risk-taking behavior varies under different levels of market concentration. The results are robust under additional tests. These findings have strong implications for regulators.

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Authors and Affiliations

  1. University of Sousse, Sousse, Tunisia

    Rim Ben Abdesslem & Halim Dabbou

  2. LARIMRAF LR21ES29, Univ.Manouba, ESCT, Campus universitaire Manouba, 2010, Tunisie

    Rim Ben Abdesslem, Halim Dabbou & Mohamed Imen Gallali

Authors
  1. Rim Ben Abdesslem
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  2. Halim Dabbou
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  3. Mohamed Imen Gallali
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Correspondence to Rim Ben Abdesslem.

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Appendices

Appendix 1

Table 7 Summary of variables and data sources
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Appendix 2

Table 8 Balance sheets (off-Balance sheets) weighting used to calculate the liquidity creation indicator
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Abdesslem, R.B., Dabbou, H. & Gallali, M.I. The Impact of Market Concentration on Bank Risk-Taking: Evidence from a Panel Threshold Model. J Knowl Econ 14, 4170–4194 (2023). https://doi.org/10.1007/s13132-022-01028-4

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  • DOI: https://doi.org/10.1007/s13132-022-01028-4

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