Email this article 
ARE GOVERNMENT BANKS LESS COMPETITIVE THAN PRIVATE BANKS? EVIDENCE FROM INDONESIAN BANKING
Abstract
Literature suggests that compared to private banks, state-owned banks have lower incentives to maximize profit. This study aims to investigate the possible different competitive behaviour of state-owned banks and private banks. The recent refinement of Panzar-Rosse method by Bikker, Shaffer, and Spierdijk (2011) was employed to estimate the competitive behaviour of state-owned and private banks. The empirical estimation of Fixed-Effect approach shows that the H-statistics of the state-owned banks was significantly smaller than of the private banks. It implies that private banks behaved more competitively than the state-owned banks. The private bank market was close to perfect competition or monopolistic competition where bank products are regarded as perfect substitutes for one another. In contrast, state-owned banks attempted to collude rather than to compete to generate a maximum profit. State-owned banks behaved less competitive because they served the interest of government or politician, have a long hierarchical organisational design, receive an interest rate subsidies and an implicit guarantee from government against failure and their business are being controlled by government.
Keywords: Bank ownership, competitive behaviour, Panzar-Rosse
Full Text:
PDFReferences
Berger, Allen N., Klapper, Leora F., & Udell, Gregory F. (2001). The ability of banks to lend to informationally opaque small businesses. Journal of Banking & Finance, 25(12), 2127- 2167. doi: http://dx.doi.org/10.1016/S0378-4266(01)00189-3
Berger, Allen N., & Udell, Gregory F. (2002). Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure. The Economic Journal, 112(477), F32-F53. doi: 10.1111/1468-0297.00682
Bikker, Jacob A., & Bos, Jaap W.W. (2008). Bank Performance: A Theoritical and Empirical Framework for the Analysis of Profitability, Competition and Efficiency. New York: Routledge.
Bikker, Jacob A., & Haaf, Katharina. (2002). Competition, concentration and their relationship: An empirical analysis of the banking industry. Journal of Banking & Finance, 26(11), 2191- 2214. doi: http://dx.doi.org/10.1016/S0378-4266(02)00205-4
Bikker, Jacob A., Shaffer, Sherrill, & Spierdijk, Laura. (2011). Assessing Competition with the Panzar-Rosse Model: The Role of Scale, Costs, and Equilibrium. Review of Economics and Statistics, 94(4), 1025-1044. doi: 10.1162/REST_a_00210
Bresnahan, Timothy F. (1982). The oligopoly solution concept is identified. Economics Letters, 10(1–2), 87-92. doi: http://dx.doi.org/10.1016/0165-1765(82)90121-5
Casu, Barbara, & Girardone, Claudia. (2006). Bank Competition, Concentration and Efficiency in the Single European Market. The Manchester School, 74(4), 441-468. doi: 10.1111/j.1467- 9957.2006.00503.x
Claessens, Stijn, & Laeven, Luc. (2004). What Drives Bank Competition? Some International Evidence. Journal of Money, Credit & Banking (Ohio State University Press), 36(3), 563- 583.
Cole, Rebel A., Goldberg, Lawrence G. , & White, Lawrence J. . (1999). Cookie-Cutter versus Character: The Micro Structure of Small-Business Lending by Large and Small Banks. Paper presented at the Federal Reserve System Research Conference on "Business Access to Capital and Credit", Arlington, Virginia.
De Bandt, Olivier, & Davis, E. Philip. (2000). Competition, contestability and market structure in European banking sectors on the eve of EMU. Journal of Banking & Finance, 24(6), 1045- 1066. doi: http://dx.doi.org/10.1016/S0378-4266(99)00117-X
Delis, Manthos, D., Staikouras, K. Christos, & Varlagas, Panagiotis, T. (2008). On the Measurement of Market Power in the Banking Industry. Journal of Business Finance and Accounting, 35(7), 1023-1047.
Gelos, Gaston R. , & Roldos, Jorge (2002). Consolidation and market structure in emerging market banking systems. IMF Working Paper, 02(186), 1-29.
Gerschenkron, A. (1962). Economic Backwardness in Historical Perspecitve Cambridge, MA: Harvard University Press.
Hadad, Muliaman D., Santoso, Wimboh, Besar, Dwiyapoetra S., Rulina, Ita, Purwanti, Wini, & Satria, Ricky. (2004). Fungsi Intermediasi Bank Asing dalam Mendorong Pemulihan Sektor Riil di Indonesia. Research Paper Biro Stabilitas Sistem Keuangan, 6(1), 1-34.
Iwata, Gyoichi. (1974). Measurement of Conjectural Variations in Oligopoly. Econometrica, 42(5), 947-966. doi: 10.2307/1913800
La Porta, R, Lopez-de-Silanes, F, & Shleifer, A. (2002). Government ownership of banks. Journal of Finance 57(2), 265-301.
Laeven, Luc. (2005). Banking Sector Performance in East Asian Countries: The Effects of Competition, Diversification, and Ownership. World Bank
Lau, Lawrence J. (1982). On identifying the degree of competitiveness from industry price and output data. Economics Letters, 10(1–2), 93-99. doi: http://dx.doi.org/10.1016/0165- 1765(82)90122-7
Lipezynski, John, Wilson, John, & Goddard, John. (2005). Industrial Organization: Competition, Strategy, Policy. Essex: Pearson Education Limited.
Margono, Heru, Sharma, Subhash C., & Melvin Ii, Paul D. (2010). Cost efficiency, economies of scale, technological progress and productivity in Indonesian banks. Journal of Asian Economics, 21(1), 53-65. doi: http://dx.doi.org/10.1016/j.asieco.2009.06.001
McLeod, Ross H. (1999). Control and competition: Banking deregulation and re‐regulation in Indonesia. Journal of the Asia Pacific Economy, 4(2), 258-297. doi: 10.1080/13547869908724682
Mian, A. (2003). Foreign, private domestic, and government banks: new evidence from emerging markets. Working Paper of University of Chicago.
Micco, Alejandro, Panizza, Ugo, & Yanez, Monica. (2004). Bank Ownership and Performance.
Working Paper of Inter-American Development Bank, 518(1-48).
Micco, Alejandro, Panizza, Ugo, & Yañez, Monica. (2007). Bank ownership and performance. Does politics matter? Journal of Banking & Finance, 31(1), 219-241. doi: http://dx.doi.org/10.1016/j.jbankfin.2006.02.007
Molyneux, P., Lloyd-Williams, D. M., & Thornton, John. (1994). Competitive conditions in european banking. Journal of Banking & Finance, 18(3), 445-459. doi: http://dx.doi.org/10.1016/0378-4266(94)90003-5
Nathan, Alli, & Neave, Edwin H. (1989). Competition and Contestability in Canada's Financial System: Empirical Results. The Canadian Journal of Economics / Revue canadienne d'Economique, 22(3), 576-594. doi: 10.2307/135541
Panglaykim, J. (1968). Notes. Bulletin of Indonesian Economic Studies, 4(9), 71-79. doi: 10.1080/00074916812331331182
Panzar, John. C , & Rosse, James. N. (1987). Testing for "monopoly" equilibrium. The Journal of Industrial Economics, 35(4), 443-456.
Shaffer, Sherrill. (1982). A non-structural test for competition in financial markets Paper presented at the Conference on Bank Structure and Competition, Federal Reserve Bank of Chicago.
Stein, Jeremy C. (2002). Information Production and Capital Allocation: Decentralized versus Hierarchical Firms. The Journal of Finance LVIII(5), 1891-1922.
Stiglitz, J. (1993). The role of state in the financial market. Paper presented at the World Bank Annual Conference on Economic Development, Washington, DC.
Vesala, Jukka. (1995). Testing for competition in banking: Behavioral evidence from Finland. Bank of Finland Studies E(1), 1-167.
Williamson, Oliver E. (1967). Hierarchical Control and Optimum Firm Size. Journal of Political Economy, 75(2), 123-138. doi: 10.2307/1829822
Yeyati, Eduardo Levy, & Micco, Alejandro. (2007). Concentration and foreign penetration in Latin American banking sectors: Impact on competition and risk. Journal of Banking & Finance, 31(6), 1633-1647. doi: http://dx.doi.org/10.1016/j.jbankfin.2006.11.003
Yeyati, Eduardo Levy, Micco, Alejandro, & Panizza, Ugo. (2004). Should the government be in the banking business? The role of state-owned banks and development banks. Research Working Paper of Inter-American Development, 517.
DOI: https://doi.org/10.20961/jaedc.v1i1.89994
Refbacks
- There are currently no refbacks.
Copyright (c) 2014 Tri Mulyaningsih, Anne Daly, Phil Lewis, Riyana Miranti
This work is licensed under a Creative Commons Attribution 4.0 International License.
|
