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Competition–risk nexus of Taiwanese banks: from a stability–inefficiency perspective

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  • Chang-Sheng Liao
  • ManJie Zhao

Abstract

Purpose - This study investigates the competition–risk nexus for Taiwan’s banking industry from the stability–inefficiency perspective over the period 2002–2021. Design/methodology/approach - This study investigates the effect of competition on bank risk from the perspective of stability inefficiency. Following Koetteret al. (2012), we measured bank competition levels by adjusting the Efficiency Lerner index. Findings - This finding supports the competition–stability hypothesis for the banking sector, which states that intensified competition reduces banks’ insolvency and credit risk, making the banking sector sounder. However, banks enjoy a “quiet life” environment and face less competition but still obtain high profits despite inefficiency. Originality/value - This study considers the moderating effects of multiple factors and finds that bank size, the revenue growth rate and new business income moderate the relationship between risk and competition. In addition, compared with the Z-score, this study investigates the competition–risk relationship through stability inefficiency, which was evaluated using the stochastic frontier approach, offering more robust results than previous studies.

Suggested Citation

  • Chang-Sheng Liao & ManJie Zhao, 2025. "Competition–risk nexus of Taiwanese banks: from a stability–inefficiency perspective," Journal of Asian Business and Economic Studies, Emerald Group Publishing Limited, vol. 32(1), pages 28-39, January.
    • Handle: RePEc:eme:jabesp:jabes-09-2023-0338
    DOI: 10.1108/JABES-09-2023-0338
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    More about this item

    Keywords

    Stability inefficiency; Bank competition; Risk-taking; Moderating analysis; C14; G21; G32;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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