Competition in banking: A disequilibrium approach

Research output: Contribution to journalArticlepeer-review

Abstract

The Rosse-Panzar revenue test for competitive conditions in banking is based on observation of the impact on bank revenue of variation in factor input prices. We identify the implications for the H-statistic of misspecification bias in the revenue equation, arising when adjustment towards market equilibrium is partial and not instantaneous. In simulations, fixed effects estimation produces a measured H-statistic that is severely biased towards zero. Empirical results for the banking sectors of the Group of Seven (G7) countries corroborate our principal finding, that a dynamic formulation of the revenue equation is required for accurate identification of the H-statistic. (c) 2009 Elsevier B.V. All rights reserved.

Original languageEnglish
Pages (from-to)2282-2292
Number of pages11
JournalJournal of Banking & Finance
Volume33
Issue number12
DOIs
Publication statusPublished - Dec 2009

Keywords

  • Banking
  • Competition
  • Revenue test
  • Dynamic panel estimation
  • EUROPEAN BANKING
  • MARKET-STRUCTURE
  • PANEL-DATA
  • PROFITABILITY
  • DYNAMICS
  • SYSTEM
  • POWER

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