Abstract
Traditional earnings-based measures of market power cannot be applied to Islamic banks since depositors are investors and not creditors. We develop a new market power measure based on the capitalized value of a bank’s deposit funds’ management fees in which more powerful banks price deposits to create greater long-term value, whilst less powerful banks target short-term earnings or risk management goals. Applying panel VAR and two-step system GMM to international data from 1990-2022, we validate the measure by showing that deposit growth rates (Granger) cause market power and are the only significant determinant across all two-step system GMM model and sub-sample variants.
Original language | English |
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Article number | 101809 |
Number of pages | 23 |
Journal | Journal of International Financial Markets, Institutions and Money |
Volume | 87 |
Early online date | 8 Aug 2023 |
DOIs | |
Publication status | Published - 1 Sept 2023 |
Bibliographical note
© 2023 The Author(s)Keywords
- Market Power
- Value-Based Measure
- Deposits
- Islamic Banking
- Optimal Profit-Sharing Ratio