Peer Reviewed Economic Journal Articles on a Perfectly Competitive Market Structure

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Research Article

Marketplace Structure, Fiscal Dependence and Industrial Growth: Evidence from the Banking Industry in Emerging Asian Economies

• Rubi Binit Ahmad,
• Chan Sok Gee

Market Structure, Financial Dependence and Industrial Growth: Testify from the Banking Industry in Emerging Asian Economies

• Habib Hussain Khan,
• Rubi Binit Ahmad,
• Chan Sok Gee

x

• Published: Baronial 4, 2016
• https://doi.org/10.1371/journal.pone.0160452

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Abstract

In this study, we examine the function of market construction for growth in financially dependent industries from 10 emerging Asian economies over the period of 1995–2011. Our approach departs from existing studies in that we utilise iv alternative measures of market structure based on structural and not-structural approaches and compare their outcomes. Results point that higher bank concentration may tedious downward the growth of financially dependent industries. Banking company contest on the other hand, allows financially dependent industries to grow faster. These findings are consequent across a number of sensitivity checks such as alternative measures of financial dependence, institutional factors (including property rights, quality of accounting standards and bank ownership), and endogeneity consideration. In sum, our study suggests that financially dependent industries grow more in more competitive/less concentrated banking systems. Therefore, regulatory regime demand to be conscientious while pursuing a consolidation policy for banking sector in emerging Asian economies.

Citation: Khan HH, Ahmad RB, Gee CS (2016) Market Construction, Financial Dependence and Industrial Growth: Evidence from the Cyberbanking Manufacture in Emerging Asian Economies. PLoS Ane xi(viii): e0160452. https://doi.org/10.1371/periodical.pone.0160452

Editor: Alejandro Raul Hernandez Montoya, Universidad Veracruzana, Mexico

Received: March 12, 2016; Accepted: July 19, 2016; Published: August 4, 2016

Copyright: © 2016 Khan et al. This is an open admission article distributed under the terms of the Creative Eatables Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original writer and source are credited.

Data Availability: Data are available from Global Fiscal Development Indicators of World Bank and Un Industrial Organization Database. Authors who intend to access the data need to follow the links and cull countries, variables and years to download the data. Details of databases/research manufactures is given below: (1) Global Fiscal Development Database of World Banking company http://www.worldbank.org/en/publication/gfdr/data/global-financial-development-database (2) Unite Nation Industrial Development Organization (UNIDO) http://stat.unido.org/ (3) Economic Research database of Federal Reserve Banking company of St. Louis https://fred.stlouisfed.org/ (four) Helgi-Library database http://www.helgilibrary.com/indicators/main (five) Appendix A and B in Clerides and Kokas (52) (half dozen) Table 1 in Rajan and Zingales (forty) (7) Table two in Fisman and Honey (53)

Funding: The authors have no support or funding to study.

Competing interests: The authors have declared that no competing interests exist.

Introduction

The significance of financial institutions for economic growth is well established in economics and finance literature. Several channels through which financial institutions may contribute to economic well-beingness have been documented. For example, financial institutions play a key role in providing information and allocating resources by evaluating firms' prospects and devoting resources to promising ventures [one]; they take on a risk-sharing office by financing mega-projects with high returns accompanied by high risk [ii]; and they perform a monitoring function over borrowers [3]. Once the part of fiscal institutions for economic activities has been recognized, the level of bank competition/concentration becomes relevant for many reasons. First, it tin can influence banks' efficiency, the product quality and the extent of invention/innovation [4–nine]. 2d, the linkage between bank concentration/contest and economical stability is also relevant to financial institutions [x–13]. Third, bank concentration/competition can too affect firms' access to credit and the monetary policy transmission [fourteen–17]. Yet, literature with respect to role of contest/concentration for economic growth is nonetheless in its early stages and simply a handful of studies have then far explored this human relationship. Even these studies are limited in telescopic, for three important reasons. First, they are far from reaching a consensus. Second, their assay covers a pre-financial crisis menses which may not be applicable to postal service-crisis times because of changing competitive weather triggered by mergers and acquisitions that occurred in response to the Asian Financial Crunch 1997–1998 and Global Financial Crisis 2008–2009. Third, their analysis is based on a single measure of competition, which could be misleading. These limitations are discussed i by one below.

With respect to the first limitation, the literature provides two contradictory findings. First, more concentrated/less competitive banking systems negatively bear upon the economic growth of financially dependent industries, while such industries grow more than in less concentrated/more competitive cyberbanking systems. (See for example, [four, 18, 19]). Second, the full-bodied banking markets actually promote economic growth while higher level of competition suppresses economical growth. (Run across for example [20–26]).

With respect to the second limitation, the competitive conditions in Asian cyberbanking markets have changed substantially in recent years. These changes can be attributed to bank consolidations, privatization, financial integration, deregulation, and financial reforms in response to the global financial crunch of 2008–2009 [27–29]. These developments raise serious concerns regarding the desirability of bank concentration or contest for industrial growth attributable to an cryptic competition-growth relationship.

Regarding the tertiary limitation, at that place is an important fence with respect to the measure out of banking marketplace contest. Under the structure-deport-performance paradigm (SCP), concentration is negatively related to the level of competition. [30] demonstrate that a loftier level of concentration in banking is likely to reduce the competition. However [31] and [32] indicate that even highly concentrated markets can be competitive due to data asymmetries. Similarly, [33] show that a higher level of concentration and contest both heighten the banking system stability and reduce the probability of crisis, and their findings thus provide indirect evidence of a positive relationship betwixt contest and concentration.

Moreover, a frequently used measure of competition, the Panzar-Rosse (PR) model [34], has been criticized for a number of reasons, including its disability to measure the level of contest/market power. (See [35], pp. 26–27, for a detailed give-and-take on the disadvantages of the PR model). The Lerner Index [36] is nevertheless another measure of market ability/level of competition; still, it also suffers from weaknesses. In dissimilarity, the Benefaction Indicator [37] has emerged every bit a better measure of competition, as it avoids the major econometric and theoretical drawbacks of the PR model and Lerner Index. Though some authors may favor whatsoever competition measure, there is general disagreement amongst researchers with respect to the all-time measure. According to [38], inferences about the level of competition differ widely using dissimilar indicators of banking market competition, and hence the implications of competition depend upon the choice of indicators. Using only one measure of marketplace structure tin can thus be misleading, because each measure out captures a unique aspect of competition and has its own advantages and disadvantages. Therefore, it is more constructive to use several measures of market structure.

In society to address the in a higher place issues, we utilise structural and non-structural measures of market structure and chronicle them to the growth of externally financially dependent industries in x Asian emerging markets (China, Hong Kong, Republic of india, Indonesia, Japan, Korea, Malaysia, Philippines, Singapore and Thailand). We besides consider the part of financial development (bank and capital market place development) and other factors that might explain the cyberbanking structure-growth relationship. These factors include growth opportunities also every bit institutional factors such as property rights, quality of accounting standards and depository financial institution ownership.

This written report contributes towards finance literature in general and bank literature in detail in several aspects. Start, it compares the findings from both structural and non-structural measures in society to have a better understanding of the competition-growth relationship. 2nd, it uses recent data that covers both the Asian Financial Crisis 1997–1998 and the Global Financial Crunch 2008–2009. Third, it considers the cyberbanking industry in emerging Asian economies where the literature on the topic is almost not-existent. Thus, four measures of banking marketplace structures are used in this written report: ii structural ones–the 5-bank concentration ratio (CR5) and the Herfindahl Hirschman Index (HHI)–and two non-structural ones–the Boon Indicator (BI) and the Lerner Index (LI)–and the results are compared. The information from x emerging Asian economies over the period of 1995–2011 are analyzed. The results show that less full-bodied and more than competitive cyberbanking systems boost the growth of externally financially dependent industries.

The residuum of the written report is organized as follows. A review of the relevant literature is presented in Section 2, while Section 3 addresses model development and measurement of variables. In Section 4 the estimation results are reported on and discussed, and finally, the decision and policy implications are reported in Section 5.

Literature Review

Earlier testify on the office of financial institutions for economic growth comes from [1], who argue that good financial systems heave economic growth by enhancing the probability of successful innovations. On the other mitt, whatever disruption in the financial sector hampers the innovation process, leading to a reduction in overall economical growth. Similarly, [39] show that even after accounting for political and other economic factors, the economical growth is higher for economies with a higher level of bank evolution and stock marketplace development. An influential study past [xl] is the foundation of research in the domain of depository financial institution development, financial dependence of industries and economic growth. The authors estimate the external financial dependence of manufacturing firms by using house level data and testify that countries with a more developed financial market experience greater industrial growth ([forty]. A few other studies which highlight the function of fiscal sector development for economical growth include [41], [42] and [43].

Thus the importance of financial institutions for economical growth is well recognized in the literature. However, the role of bank market place construction (contest/concentration) for economic growth is withal in the early on stages. The few studies which look into this domain are far from reaching a consensus and provide two seemingly contradictory views: one favoring a higher level of competition/lower level of concentration for economic growth while the other suggests the opposite, equally shown below.

According to the get-go view, firms' growth is limited in highly full-bodied or less competitive banking systems because firms take less access to finance. The limited growth of firms (due to a lack of easy access to credit) translates into overall lower economic growth [18, 19]. [44] on the other hand find that a higher level of depository financial institution concentration negatively affects the industrial and per capita income growth, but that this relationship is meaning only for low-income countries. The underlying logic for this view is that competitive banking systems make access to finance easy and affordable for firms, enabling them to infringe and invest more than. [45] and [46] support this view and demonstrate that concentrated/less competitive banking systems issue in depression firm creation and every bit a result less economic growth. [47] debate that banks operating in concentrated markets tend to use their market power and charge high loan rates which brand funding more expensive for firms, and expensive funding depresses firms' investing activities. Similarly, [4] provide evidence that industries that are more dependent on external finance grow more in a more competitive banking environment.

The second view is that banks in more concentrated markets perform the role of data producer and constitute a strong relationship with their customers. On the other paw, increased competition can atomic number 82 to asymmetry of information between borrowers and lenders, less lending and less investment [24]. Moreover, [22] argues that banking competition hampers the screening function performed by banks in their choice of borrowers. Banks in competitive markets have less care in screening firms and besides charge higher loan rates. A higher cost of borrowing decreases the availability of funds. According to [21] and [25], economies with less competitive markets feel more cosmos and emergence of new firms. Evidence supporting this view also comes from [20], who show that the growth of industries that are dependent on external finance is faster in economies with concentrated banking systems.

A few recent contributions highlighting the favorable effects of concentration for economic growth come up from [48], [49] and [50]. [48] argues that financially dependent industries in full-bodied banking markets perform improve than those operating in more competitive markets. [49] show that a higher level of concentration in the banking market place increases the overall growth of the manufacturing industry. However, the upshot is stronger for industries with a pocket-size house size, a lower incorporation rate, and less dependence on public debt (and, hence, relatively greater reliance on banks). In contrast, [50] find that both competition and concentration measures are positively related to economic growth, which may signal that measures of concentration practise not necessarily correspond a low level of competition.

To summarize, the overall prove on the part of banking structure (competition/concentration) for economic growth is ambiguous and provides little policy inputs every bit to whether concentration or competition is favorable for economical growth. Furthermore, only a few studies on competition-growth–[four] and [48]–utilise the Panzar-Rosse model (a non-structural approach) along with structural approaches (CR5 and HHI). However, research has shown that the PR model is subject to several theoretical and econometric drawbacks, including its inability to measure level of competition/market power. The Boon Indicator, on the other hand, is a better measure out and avoids the major econometric and theoretical drawbacks of the PR model. This study addresses some of the issues of before studies by using several measures for both concentration and competition: CR5, HHI, the Lerner Index and the Boone Indicator.

Methodology

To determine the role of the banking marketplace structure for industrial growth in emerging Asian markets, the methodology is the i practical by earlier studies, such equally [20], [4], [48]. First the mensurate of industrial growth on market construction measures (concentration/competition) is regressed and then the measures of bank development and stock market development (collectively referred to as financial development), and fiscal dependence as in [20], are introduced.

Basic Model

In this written report a bones model has been developed that examines the result of concentration/contest on industrial growth in general; that is, without considering manufacture characteristics e.g. financial dependence.

(1)

Where subscripts j, c and t respectively indicate industries, countries and time. Growth (Value Added) is the almanac growth of manufacture value added. Industry, country and fourth dimension fixed furnishings are included so as to capture unobservable heterogeneity across industries, countries and time respectively. Post-obit [20], included here are the measure of stock market place development (market capitalization), measure of bank development (domestic credit to private sector), and state level controls such as per capital GDP, and an Index of quality of accounting standards to address the misspecification issues. The Market Structure variable represents the measures of banking concern concentration and banking concern competition, to be discussed in detail in the side by side department. Equally mentioned in the introduction, the expected signs on coefficient of market construction is ambiguous.

Extended Model

The basic model identifies the overall impact of contest/concentration on industrial growth. In society to decompose this effect at country and manufacture levels, an extended model is constructed in which two interaction terms are included. Kickoff, between the market structure measures (concentration and competition) and industries' financial dependence; and second, between the financial dependence of manufacture and fiscal development.

(2)

The interaction term of market place construction and financial dependence tests whether financially dependent industries grow more/less in economies with high/depression depository financial institution concentration/competition. The sign on β _iv is not clear a priori owing to cryptic show from the relevant literature. Interaction betwixt external dependence and fiscal evolution is included, following earlier studies, to make up one's mind whether the growth of financially dependent industries is college for economies with a well-developed financial sector. The sign on β ₅ is expected to be positive because this relationship has been extensively discussed in [twoscore], and most all subsequent studies in this domain endorse its positive human relationship with industrial growth.

Information and Variables

Industrial Growth.

Data on variables used in the analysis by this study come from various sources, and the definitions of variables and sources of data are shown in Table 1. Data on the dependent variables in this report (annual growth in value added of manufacturing industries in each country) come from UNIDO (United Nations Database on Industrial Statistics).

Marketplace Structure.

For market place construction, four dissimilar measures accept been applied here: the 5-Bank concentration ratio (CR5), Hirschman Herfindahl Index (HHI), Lerner Alphabetize and Benefaction Indicator. Two of these measures (CR5 and HHI) are based on the structural approach from traditional Industrial Organization (IO) literature. Under this approach, the level of contest is inferred from the structure of the marketplace (level of concentration). CR5 is measured as the fraction of total assets held past the v largest banks of a land over the full assets of all banks in that country. HHI is defined as the sum of squared market place shares based on the assets of all the banks in each country. Both these measures have been used in literature to report the part of depository financial institution concentration for industrial growth (see [20]; [4]; [48]; and [49]). Information on CR5 has been obtained from the Global Financial Database of the Globe Banking concern while HHI has been calculated on the footing of the banks' total assets, nerveless from Bankscope. The structural approach has been criticized for its inability to measure the true level of competition. Therefore, we as well employ two non-structural measures (i.e. the Lerner Index and Boone Indicator), from the New Empirical Industrial Organization (NEIO). The aim of the NEIO measures is to appraise the level of competition directly from firms' bear.

Lerner Index.

The Lerner Index directly measures the degree of market power. It is calculated as the ratio of mark-up to price of output:

Where Price _i,t is the price of the total assets and MC _i,t is the marginal cost of producing an boosted unit of output. Co-ordinate to [36], the value of the Lerner Alphabetize ranges between 0 –indicating the state of no marketplace ability (perfect competition)–and 1 –indicating a situation of high market power (monopoly). Therefore, the higher values of Lerner indicate more market power and less competitive conditions.

Boone Indicator.

The idea behind the Boone Indicator [37] is that efficient firms are highly rewarded and inefficient firms are more harshly punished in perfectly competitive markets. The Boone Indicator captures the market share manual from inefficient to efficient firms. Thus the intensity of competition is measured from a profitability equation every bit follows:

Where π _i and c _i represent bank profit and costs respectively. For banks with lower marginal costs, the profits are college, therefore β < 0. Thus, increases in contest raise the profits of more efficient banks relative to less efficient ones. Larger values of β in absolute terms betoken higher levels of competition [51]. The data on the Lerner Index and Boone Indicator have been compiled from a variety of sources. The main source is the dataset of [52]. However, their data covers the period 1997–2010, and then we accept collected data for the years 1995, 1996 and 2011 from Economic Research database of Federal Reserve Bank of St. Louis and Global Financial Evolution Database of Globe Banking company.

External Financial Dependence.

The financial dependence of an manufacture refers to the need for firms to heighten finances from external sources; in other words, banks and/or capital markets. [40] determine the external dependence of the US manufacturing industry by using business firm-level data. They define external financial dependence as the ratio of majuscule expenditure not financed with cash flows from operations to total uppercase expenditure. Almost all subsequent studies (for example, [20]; [4]; [53]; and [48]) use their data to infer the financial dependence of manufacturing sectors in other countries (See footnote 4 in [48] and footnote 6 in [4]). Due to mismatches in the sample period, nosotros are unable to straight use their data. However, we use the ranking order of external financial dependence from Table 1 in [forty] and Table 2 in [53]. We generate a dummy variable which equals i if financial dependence of a sector is higher up the median value and 0 otherwise. It thus bisects the data into two groups: that is, sectors located above the mean value are highly dependent on external finance and those located below the median are less financial dependent. For a robustness cheque we also rank industries in 4 and 10 groups in social club of their fiscal dependence. However, the results from alternative rankings and dummy variables are qualitatively similar.

Financial Development.

We follow [iv] and utilise full capitalization equally the measure out of financial development. Full capitalization is the sum of stock marketplace capitalization as a percent of Gross domestic product which proxies for uppercase market development and domestic credit to the private sector as a percentage of Gdp which represents bank development. Both stock market place capitalization and private credit take also been used separately for a robustness check. Data on marketplace capitalization and domestic credit to the individual sector has been obtained from the Globe Development Indicators of the World Banking concern.

A few other variables, such as investment opportunities, belongings rights, bookkeeping standards and bank ownership take been used for a robustness check. These variables and their sources are explained when they are used in interpretation.

Empirical Results

Descriptive Statistics and Correlation Analysis

This section provides state wise descriptive business relationship of variables of the study. Land wise averages, standard deviations, and minimum and maximum values on important variables are reported in Table ii. CR5 and HHI both represent the level of bank concentration in each land. Singapore is at the top in banking concern concentration, with an average value of CR at 0.962, followed by Korea with an average value of CR at 0.934. The Indian market is the least concentrated, with a CR of 0.433, while Japan and Hong Kong have the 2nd and third to the lowest degree full-bodied markets with an boilerplate CR of 0.497 and 0.498 respectively. For the residuum of the countries, CR ranges between 0.661 for Thailand and 0.781 for Philippine, with only small variations. The ranking of countries with respect to market concentration is non same with HHI, even so. Singapore has the largest average for HHI (0.37), followed by China with an average value of HHI at 0.178. India, Nippon and Hong Kong occupy the concluding three positions, with HHI at 0.087, 0.099 and 0.104 respectively.

Ii competition measures (the Lerner Index and Boone Indicator) correspond the level of contest in banking markets. However, the ranking of countries with respect to the Lerner Index and Boone Indicator are slightly unlike. For instance, China has the least competitive cyberbanking market in terms of the Lerner Index (0.363), simply information technology is the second to the lowest degree competitive in term of the Boone Indicator (-0.020). Similarly, Nippon is the least competitive in terms of the Boone Indicator, with an average value of -0.019; however, it is 5^thursday on the level of contest when measured through the Lerner Index.

In terms of manufacture growth, People's republic of china is at the summit, followed by Indonesia, Hong Kong, India, Thailand and the Philippines, with average values of industrial growth at 0.265, 0.243, 0.231, 0.146, 0.142 and 0.126 respectively. Financial development is estimated using ii indices: marketplace capitalization, which measures capital market development, and domestic credit to the private sector, which measures bank development. In terms of bank development, Japan is at the top, followed by Malaysia, Thailand, China and Korea with average values on bank evolution at one.943, 1.231, i.208, i.107 and ane.1.5 respectively.

Correlations among important variables are reported in Table 3. There are two of import considerations with respect to correlations amid contained variables. First, that correlations amongst contained variables are not so high that they create the problem of multicollinearity. Second, that dependent variable has a significant human relationship with explanatory variables, peculiarly the variables of involvement. Signs and magnitude with respect to the second consideration are not important at this phase considering simple correlation may not depict the true relationship without controlling for other relevant explanatory variables. A few high correlations in Table 3 exercise raise business concern about the issue of multicollinearity (i.east. 0.806, 0.652, and 0.632). Still, some variables such as CR and HHI are used alternatively in the model and do not appear together. We follow [54] to handle this issue by taking the lag values for highly correlated variables when they are used together. We likewise apply the estimation technique with and without such variables to detect the differences. However, the results are qualitatively similar. Column one of Tabular array 3 shows the correlation between our dependent variable and explanatory ones. About of these correlations are significant, with expected signs, and represent a rough picture of relationships among variables of interest. Nevertheless, information technology is besides early on to draw conclusions on the basis of unproblematic correlations.

Results and Word

Basic Model.

In the first footstep, we explore the role of concentration/competition for industrial growth in general, regardless of specific industry characteristics (i.eastward. external financial dependence). Tables 4 and 5 written report the results of estimation based on Eq 1. The dependent variable in all the specifications is the annual growth of existent value added of the manufacturing industries. Two indicators (CR5 and HHI) are used every bit the measure of banking company concentration while the Lerner Alphabetize and Boone Indicator measure banking company contest. Following [xx], we besides include a log of per capita Gross domestic product, domestic credit to the private sector, market capitalization, and depth of credit information.

Columns i and three in Table 4 display the interpretation results when CR5 and HHI are used respectively as the main regressors without controlling for other factors. In Columns 2 and iv we report the estimation results when other factors accept besides been accounted for. The coefficients on both of the concentration measures are consistently meaning, with negative signs. These results imply that a ascension in bank concentration in general has detrimental effects on industrial growth. The economic significance of coefficients is also of import here. I pct bespeak increment in the level of concentration may lead to a decrease of around 0.46 pct in industrial growth. These findings concur with those of [20] who too find that depository financial institution concentration in full general slows downward industrial growth. [4] and [48] do non report coefficients on measures of concentration, but merely discuss the interaction terms. However, like results can exist inferred from [4]. [48] and [fifty] provide contradictory findings with respect to the bear upon of concentration on economic growth. Table v reports the estimation results when two competition measures (Lerner Index and Boone Indicator) have been used equally the primary regressors.

Columns ane and iii in Table five display the estimation results when competition measures have been used as the main regressors excluding the other factors. Columns 2 and 4 show the estimation results when other factors have also been included in the model. In all the estimations, the coefficients on both Lerner and Boone are significant with negative signs. Interpretation of negative signs for Lerner and Boone is bit tricky. Since the larger values of the Lerner Index bespeak more market ability and less contest, the negative coefficient for the Lerner Index reinforces our findings in Table 4 that a depression level of competition in the banking industry depresses industrial growth. Similarly, the smaller values of the Boone Indicator (higher values with negative signs) indicate a college level of contest, and therefore the negative coefficient on Boone implies that a low level of competition undermines industrial growth. Our findings for the relationship between contest industrial growth are in agreement with [four] and [50]. Nonetheless, [48] finds a low level of competition to exist favorable for industrial growth.

The behavior of coefficients in relation to other variables is in understanding with the literature: for example, domestic credit to the private sector which proxies for bank development has positive and pregnant coefficient, indicating that industries with improve adult banking systems showroom higher growth. Per capita Gross domestic product, which shows the convergence effect of the economy to its long run equilibrium, has negative and significant coefficient equally expected. Market capitalization, which represents evolution of uppercase markets, has positive coefficient showing that industries grow more than in economies where capital markets are more developed. The coefficient on the accounting standards index is positive, showing that more disclosure enables industries to abound more, as they are able to obtain finances from a multifariousness of investors. These findings adjust to earlier studies such as [20], [iv] and [48]. These findings advise that college banking company concentration is probable to slow down the industrial growth in general, whereas the depository financial institution competition encourages the growth of manufacturing industries.

Extended Model.

Table 6 reports the results of an estimation based on Eq two, where we include 2 interaction terms (the interaction betwixt external dependence and concentration/competition, and the interaction between external dependence and financial development). Both financial dependence and fiscal development accept significant and positive coefficients, suggesting that industries which are dependent on external finance and those operating in well-developed financial systems grow more. The coefficients on all marketplace structure measures maintain their significance with expected signs. The interaction terms between concentration (both CR5 and HHI) and financial dependence is negative and significant, implying that banking concern concentration shrinks the growth of externally financially dependent industries. These finding are in dissimilarity to earlier evidence provided by [20] and [48], who show a positive relationship between bank concentration and the growth of externally financially dependent industries. On the other hand, [4] provide weak evidence of a negative touch on of bank concentration on the growth of externally financially dependent industries.

The coefficient on the interaction term betwixt competition measures (Lerner Index and Boone Indicator) and financial dependence is significant with negative sign. These results suggest that bank competition encourages the growth of externally financial dependent industries. Our results for competition are in agreement with the findings of [4], who notice that bank competition has a positive affect on the growth of externally financially dependent industries. [48], notwithstanding, shows that banking concern contest is negatively related to the growth of industries that depend on external finance; this is in dissimilarity to both [4] findings and our own. The interaction term betwixt external dependence and financial development enters the model with positive and pregnant coefficient, indicating that externally financially dependent industries abound more in financially adult economies. Our findings for financial development and fiscal dependence are in agreement with before literature [four, 20, 40–42, 48, 55]. Other variables such as per capita Gross domestic product have expected and consequent signs in all specifications.

Robustness Check

In this department we conduct a number of robustness checks to ensure that the results reported in Tabular array 6 reflect the true relationship between market structure and the growth of externally financially dependent industries. We specifically account for growth opportunities, holding rights, accounting standards, foreign depository financial institution buying and endogeneity.

Growth opportunities.

It is quite possible that the human relationship betwixt industrial growth and financial development is driven by other elements that are also responsible for industrial growth beyond the economies. For instance, [53] maintain that growth rate differentials beyond the economies are amend explained by the presence of growth opportunities rather than financial development. A similar argument may also employ to competition/concentration. In other words, information technology is not the availability/unavailability of finance to externally dependent industries in a competitive/ concentrated banking system that leads to sectoral growth, just rather the existence/non-existence of growth prospects which somehow are related to concentration/competition. Following [4] and [53], we use manufacture sales (Data on manufacture sales come from UNIDO) as a proxy for growth opportunities. We include interaction terms of growth opportunities with concentration, competition, financial dependence and financial development. The interpretation results for growth opportunities are reported in Table 7. Alternatively, we as well utilize cost-earnings ratio (a market based measure) to capture the effect of growth opportunities. Consequence for cost-earnings ratio are reported in Table 8. The coefficients on the interaction terms of financial development and growth opportunities are positive and significant; however, the interaction term of financial evolution and fiscal dependence in not meaning in some cases. These findings are similar to those of [4] and [53]. What is important for our study is the finding that the interaction terms of fiscal dependence and market structure measures (concentration and contest) have expected and significant coefficients, implying that even after bookkeeping for growth opportunities, bank concentration seems to suppress the growth of externally financially dependent industries while more competitive banking systems are probable allow these industries to abound more.

Belongings Rights.

The economic literature suggests that institutional factors such as enforcement of property rights play an important role in industrial growth and fiscal development (see for instance, [56]; and [57]. In order to ensure that our findings are not influenced past such institutional characteristics, we follow [4] and include the interaction between property rights and fiscal dependence. The results from this analysis are shown in Table 9. The interaction term of property rights and financial dependence enters with positive and significant coefficient, indicating that financially dependent industries grow more in economies with a greater enforcement of property rights. Importantly, the coefficients on the interaction term between market structure (competition and concentration) and fiscal dependence are still significant and with consistent signs. Thus even later on controlling for property rights, our main findings are unchanged: in other words, a higher level of competition and a lower level of concentration in banking industry foster the growth of financially dependent industries.

Accounting Standards.

Economical growth across countries may vary considering industries have varying admission to external finance, depending upon the quality of disclosure. Co-ordinate to [4], "quality of accounting standards" refers to all forms of external financing and not simply to banking and stock markets. Moreover, quality of bookkeeping standards reflects the potential to obtain finance. [twoscore] claim that higher standards of financial disclosure enable firms to raise finance from a vast group of investors. We include in our estimation the interaction term of accounting standards with financial dependence, and these results are reported in Tabular array 10. The coefficient on the interaction term between accounting standards and financial dependence is pregnant and positive. Our findings for accounting standards are in agreement with earlier studies (for example,[4, 20, 40]. What is of import for our assay is that the coefficient on the interaction of financial dependence and fiscal development is significant. The main findings of our study are reinforced: namely, the interaction term of financial dependence and concentration/competition remained unchanged. Thus our results are not driven by availability of amend quality information.

Bank Buying.

Industrial growth may be different across countries not simply because of cyberbanking concentration/competition but as well because of the ownership structure of the cyberbanking sectors. For example, firms' access to credit in economies dominated by country-owned banks can be lower considering it is possible that such banks practise not have enough incentives to build stiff lending relationships with successful ventures [20]. In contrast, the being of foreign banks can increase competition and improve efficiency, which ultimately increases the credit supply [58–61]. Similarly, a reduced toll of borrowing equally a outcome of strange acquisitions tin can lead to firms having greater access to credit [62]. Withal, the pressure from foreign banks can crusade domestic banks to reduce the credit supply, thus firms' access to credit decreases [63–65].

We utilize data on the share of foreign and country owned banks to examine their role in the relationship between concentration/competition and industrial growth. Tabular array 11 shows the results of interpretation where the interaction terms of foreign owned banks and state endemic banks with financial dependence take been used (Information on foreign and country owned banks' share comes from different sources, such as the central banks of sample countries, Helgi Library and the World Bank). The coefficient on the interaction term between financial dependence and state owned banks is negative and significant, thus supporting the argument that a higher share of state owned banks depresses industrial growth. The coefficient ton the interaction term between strange banks and financial dependence is positive and significant, implying that a higher share foreign banks increases the access to credit and therefore fosters the growth of financially dependent industries. Our findings for state endemic banks are in understanding with [48]; however, for foreign banks our results contrast with his findings.

Importantly, our principal findings (the concentration/competition and growth of financially dependent industries), remain the aforementioned, equally the coefficients on interaction between the measures of market structure (concentration/competition) and financial dependence remain significant with consistent signs even after controlling for banks' ownership.

Dealing with Endogeneity.

According to [20], it is possible that the relationship betwixt market structure and industrial growth suffers from an endogeneity bias because the bank market structure may arrange to the industrial structure. [4] likewise discuss the possibility of an endogeneity problem in their study. Post-obit [54] and [4], we bargain with endogeneity problem past estimating the results with instrumental variable (IV) approach and the Two-footstep System GMM dynamic console model with [66] corrected standard errors and pocket-size sample adjustments. The results from GMM and the IV approach are reported in Tables 12 and xiii respectively. The coefficients on interaction terms between the mensurate of market construction (concentration/competition) and financial dependence remain unchanged. Also the coefficients on all the other variables are meaning and with expected signs. These results reaffirm our findings that externally financially dependent firms grow more than/less in competitive/concentrated banking systems.

Market Structure-Industrial Growth Relationship and the Financial Crisis.

Although, the fluctuations in industrial growth in pre and post financial crunch periods accept been accounted for by introducing country, industry and time stock-still furnishings, equally an additional robustness check, the analysis has too been performed on unlike sample periods (we are thankful to bearding referee for this valuable insight) i.eastward. subsample 1996–1999 (Asian financial crises flow), subsample 2000–2006 (postal service financial crunch flow) and subsample 2007–2010 (Global financial crunch catamenia). Sample has been divided in iii groups on the basis of (i) insights from before studies [i.eastward. [67–69]] and (ii) coefficients on fourth dimension dummies for year 1996, 1997, 1998, 1999, 2007, 2008, 2009 and 2010. Although, not reported in table for brevity, the coefficients on these years are significantly negative indicating that industrial growth has been lower during the financial crisis. Table 14 shows the estimation results for subsamples 1996–1999, 2000–2006, and 2007–2010. The assay has been performed using all measures of market structure, however, we simply report results from CR5 and Lerner Alphabetize to conserve the infinite (results from other measures are qualitatively similar to the overall results).

Of import for this analysis are the coefficients on market construction variables, the interaction between marketplace structure and financial dependence and the interaction between financial evolution and financial dependence. Coefficients on both CR5 and Lerner Index beyond all the sample periods are meaning with negative sign. Similarly, the coefficients on the interaction terms between market place structure and financial dependence, and the financial dependence and fiscal development are significant with the expected sign. Moreover, the behavior of other variables across all the sample periods is as well similar to results from the main estimation. Over all, our findings (externally financially dependent firms abound more/less in competitive/full-bodied banking systems) are robust across different sample periods.

Conclusion

We have studied the part of bank concentration/contest for growth of manufacturing industries that are dependent on external financing. Nosotros have taken into account two structural and ii non-structural measures of market structure and applied them to industry level data on the manufacturing industries from 10 emerging Asian economies, including China, over the period of 1995–2011.

The results show that banking concern concentration (as measured past CR5 and HHI) may slow down the growth of externally financially dependent industries. This finding lends support to the idea that firms in a concentrated banking industry have low access to credit, which leads to less economical growth [18, 19], and that higher concentration in banking sectors leads to less new house creation and less economic growth [45, 46]. On the other hand, banking company competition (as measured by the Lerner Index and Boone Indicator) may allow financially dependent industries to grow faster. This finding supports the notion that a higher degree of contest in the cyberbanking manufacture reduces the holdup bug, reduces the cost of intermediation and encourages financially dependent firms to admission depository financial institution credit [iv].

These findings are robust when subjected to a number of sensitivity checks including culling measures of fiscal dependence, and other channels that might explain the relationship between market construction (concentration and competition) and the growth of financially dependent industries. Other factors explaining this relationship include institutional ones, such property rights, quality of accounting standards and ownership of banks. In decision, our study suggests that industries in need of external finance abound more in a less full-bodied and more in competitive banking environment.

Policy Implications

The written report provides important implications for anti-trust policies. For case, in the aftermath of the Asian fiscal crunch 1997–98 and the global financial crisis 2008–09, there has been an unprecedented increase in depository financial institution consolidations. Based on concentration-stability hypothesis, the thought was to strengthen the fiscal institutions in the events of financial downturns. The concentration-stability hypothesis suggests that larger banks in full-bodied banking industries can reduce the financial system take a chance. However, the literature reveals that concentrated banking industries may testify to be counterproductive for financial stability, banking company efficiency, monetary policy transmission and the economic growth. This written report provides the evidence of such counterproductive effects of bank concentration on the economic growth of financially dependent industries. Therefore, consolidation policies must be pursued carefully.

Acknowledgments

We are thankful to the editor PLOS I, the anonymous referees, Iram Naz, Abdul Ghafoor, Fiza Qureshi, Ijaz Ur Rahman, Adeel Ahmed and Penny Ann McKeon for their valuable comments and encouragement that resulted in the comeback of this commodity.

Writer Contributions

1. Analyzed the information: HHK CSG.
2. Wrote the newspaper: HHK RBA CSG.
3. Problem Identification and review of literature: HHK RBA. Results and word: HHK RBA.

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Source: https://journals.plos.org/plosone/article?id=10.1371%2Fjournal.pone.0160452

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