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Market structure and power: comparative empirical evidence from a dual banking system

Author

Listed:
  • Rafik Harkati

    (International Islamic University Malaysia)

  • Syed Musa Alhabshi

    (International Islamic University Malaysia)

  • Salina Kassim

    (International Islamic University Malaysia)

  • Noraini Mohd Ariffin

    (International Islamic University Malaysia)

Abstract

Countries cautiously observe their banking sector stability by virtue of its vital repercussions. Different researchers used different measures/proxies to investigate stability and its relevance to market structure and power, and mixed evidence was presented. In a dual banking system, the influence of the market structure and power on stability is overlapped given the operation of two different types of banks side by side. This paper uses advanced Z-score (time-varying Z-score and adjusted Z-score) to extend evidence and disentangle the stability linkage between the banking sector, Islamic and conventional banking markets. Quarterly data of 41 commercial banks operating in the Malaysian dual banking sector for the period 2011q4-2020q2 are obtained from FitchConnect database. The study applies the Corrected Least Square Dummy Variable (LSDVC) estimator in the investigation given its superior performance over other commonly used techniques. Diverse important results and conclusions are observed and drawn as in which manner structure and power within the banking sector at large, Islamic and conventional banking markets influence stability of each other, and to which extent the Islamic market is distinguishable and free from the influence of conventional market features. Policy makers and researchers need to be mindful of the used stability proxy and its dynamism.

Suggested Citation

  • Rafik Harkati & Syed Musa Alhabshi & Salina Kassim & Noraini Mohd Ariffin, 2022. "Market structure and power: comparative empirical evidence from a dual banking system," Economic Change and Restructuring, Springer, vol. 55(3), pages 1815-1873, August.
    • Handle: RePEc:kap:ecopln:v:55:y:2022:i:3:d:10.1007_s10644-021-09369-x
    DOI: 10.1007/s10644-021-09369-x
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    More about this item

    Keywords

    Rolling Z-score; Adjusted Z-score; Stability; Risk-taking; Banking market structure; Banking market power; Dual banking system;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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