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Role of bank competition in determining liquidity creation: evidence from GCC countries

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  • Shoaib Ali
  • Imran Yousaf
  • Sumayya Chughtai
  • Syed Zulfiqar Ali Shah

Abstract

This study aims to investigate the impact of banking-sector concentration on the banks’ liquidity creation in GCC countries over the period from 2012 to 2018 by using a dynamic GMM panel procedure. The results suggest that increased bank competition reduces banks’ liquidity creation across the GCC countries. The study’s findings are in line with the ‘financial fragility hypothesis” according to which banks to reduce their lending activities when competition is high in the market. The evidence suggests that the banking industry is different from others, and pro-competitive policies in the banking industry can reduce liquidity provision by banks. In the context of policy implications, a concentrated banking system discourages capital provision to firms; hence, regulators have to take appropriate measures to resolve the problem of a reduced supply of capital. Government must regulate the banking sector by keeping in view their long-run goal as competition is a double-edged sword in banking.

Suggested Citation

  • Shoaib Ali & Imran Yousaf & Sumayya Chughtai & Syed Zulfiqar Ali Shah, 2022. "Role of bank competition in determining liquidity creation: evidence from GCC countries," Journal of Applied Economics, Taylor & Francis Journals, vol. 25(1), pages 242-259, December.
    • Handle: RePEc:taf:recsxx:v:25:y:2022:i:1:p:242-259
    DOI: 10.1080/15140326.2022.2043114
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    Citations

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    Cited by:

    1. Douglas A. Adu, 2022. "Competition and bank risk-taking in Sub-Saharan Africa countries," SN Business & Economics, Springer, vol. 2(7), pages 1-26, July.
    2. Berger, Allen N. & Boot, Arnoud W.A., 2024. "Financial intermediation services and competition analyses: Review and paths forward for improvement," Journal of Financial Intermediation, Elsevier, vol. 57(C).
    3. Changjun Zheng & Sinamenye Jean-Petit, 2023. "The Effects of the Interactions Between Agro-Production, Economic, and Financial Development on Bank Sustainability," SAGE Open, , vol. 13(2), pages 21582440231, June.
    4. Gupta, Juhi & Kashiramka, Smita, 2024. "Examining the impact of liquidity creation on bank stability in the Asia Pacific region: Do ESG disclosures play a moderating role?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 91(C).
    5. Ammara Sarwar & Wajid Alim & Saleh Nawaz Khan, 2023. "Exploring the Relationship Between Financial Inclusion and Liquidity Creation in The SAARC Countries," Journal of Economic Impact, Science Impact Publishers, vol. 5(1), pages 114-122.
    6. Beylem Çelik & Gökhan Özer & Abdullah Kürşat Merter, 2023. "The Effect of Ownership Structure on Financial Reporting Timeliness: An Implementation on Borsa Istanbul," SAGE Open, , vol. 13(4), pages 21582440231, November.
    7. Hao, Jing & Peng, Mengzu & He, Wenjia, 2023. "Digital finance development and bank liquidity creation," International Review of Financial Analysis, Elsevier, vol. 90(C).

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