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Exploring short‐ and long‐run links from bank competition to risk
Author(s) -
Davis E. Philip,
Karim Dilruba
Publication year - 2019
Publication title -
european financial management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.311
H-Index - 64
eISSN - 1468-036X
pISSN - 1354-7798
DOI - 10.1111/eufm.12176
Subject(s) - competition (biology) , economics , volatility (finance) , statistic , lerner index , short run , monetary economics , financial economics , microeconomics , ecology , statistics , mathematics , market power , biology , monopoly
The current literature offers diverse findings on the bank competition‐risk relationship. We seek to advance understanding by looking at both short‐ and long‐run relationships for banks from 27 EU countries, using a six‐year period before and since 2007 and employing both the H‐statistic and the Lerner index as measures of competition. We thus highlight further nuances in the competition–risk relationship that are absent from the current literature. Both measures have a positive short‐run relationship with risk, while long‐run effects differ. Underlying this, the competition measures differ in their relationship to the volatility of profits, with important policy implications.