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How Bank Market Power and Diversification Affect Bank Stability? Evidence From Indonesia

In: Macroeconomic Risk and Growth in the Southeast Asian Countries: Insight from Indonesia

Author

Listed:
  • Diyan Lestari
  • Andi Nurhikmah Daeng Cora
  • Edwin Arojado Balila

Abstract

After the global financial crisis, many countries deregulated their banking sectors. The banking sector has become the major funding supplier in most emerging countries. Bank in Indonesia has provided an essential role as an intermediary institution in matching up surplus and deficit parties with a relatively concentrated market structure. Moreover, banks should innovate and diversify to provide excellent products and services to their customers and win the market. More diversified banks are expected to have better performance and more resilience, especially during a crisis. This study examines the relationship among bank market power, diversification, and bank stability of listed bank companies in Indonesia from 2008 to 2020. This study employs a two-step system GMM to deal with potential endogeneity. This study finds that banks’ market power and diversification affect bank stability, and the presence of crisis encourages banks to be more prudent. The result of this study provides insightful implications for academics and policy-makers.

Suggested Citation

  • Diyan Lestari & Andi Nurhikmah Daeng Cora & Edwin Arojado Balila, 2023. "How Bank Market Power and Diversification Affect Bank Stability? Evidence From Indonesia," International Symposia in Economic Theory and Econometrics, in: Macroeconomic Risk and Growth in the Southeast Asian Countries: Insight from Indonesia, volume 33, pages 47-59, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:isetez:s1571-03862023000033a004
    DOI: 10.1108/S1571-03862023000033A004
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    More about this item

    Keywords

    Market power; diversification; stability; bank; crisis; banking competition; G1; G2; G21;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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