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Exploring short‐ and long‐run links from bank competition to risk

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  • E. Philip Davis
  • Dilruba Karim
Abstract
The current literature offers diverse findings on the bank competition‐risk relationship. We seek to advance understanding by looking at both short‐ and long‐run relationships for banks from 27 EU countries, using a six‐year period before and since 2007 and employing both the H‐statistic and the Lerner index as measures of competition. We thus highlight further nuances in the competition–risk relationship that are absent from the current literature. Both measures have a positive short‐run relationship with risk, while long‐run effects differ. Underlying this, the competition measures differ in their relationship to the volatility of profits, with important policy implications.

Suggested Citation

  • E. Philip Davis & Dilruba Karim, 2019. "Exploring short‐ and long‐run links from bank competition to risk," European Financial Management, European Financial Management Association, vol. 25(3), pages 462-488, June.
    • Handle: RePEc:bla:eufman:v:25:y:2019:i:3:p:462-488
    DOI: 10.1111/eufm.12176
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    References listed on IDEAS

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    Cited by:

    1. E Philip Davis & Dilruba Karim & Dennison Noel, 2020. "The Effects of Macroprudential Policy on Banks' Profitability," National Institute of Economic and Social Research (NIESR) Discussion Papers 514, National Institute of Economic and Social Research.
    2. Davis, E. Philip & Karim, Dilruba & Noel, Dennison, 2022. "The effects of macroprudential policy on banks' profitability," International Review of Financial Analysis, Elsevier, vol. 80(C).
    3. Rakan Fuad Aldomy & Chan Kok Thim & Nguyen Thi Phuong Lan & Mariati Binti Norhashim, 2020. "Bank Concentration and Financial Risk in Jordan," Montenegrin Journal of Economics, Economic Laboratory for Transition Research (ELIT), vol. 16(3), pages 31-44.
    4. de la Horra, Luis P. & Perote, Javier & de la Fuente, Gabriel, 2022. "The impact of economic policy uncertainty and monetary policy on R&D investment: An option pricing approach," Economics Letters, Elsevier, vol. 214(C).

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