Multimarket competition and profitability: evidence from Ukrainian banks

Tho Pham; Oleksandr Talavera; Junhong Yang

doi:10.1093/oep/gpz041

Multimarket competition and profitability: evidence from Ukrainian banks

Tho Pham, Oleksandr Talavera, Junhong Yang

Economics

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3 Citations (Scopus)

100 Downloads (Pure)

Abstract

This paper examines the impact of multimarket competition on bank performance. Exploiting a unique data set of Ukrainian banks’ branch locations, we construct three measures of multimarket contacts and find their positive effects on profitability. This finding supports the mutual forbearance hypothesis: the higher number of overlapped markets increases familiarity and similarity among multimarket rivals and makes them reluctant to compete aggressively. Further, we establish an identification strategy using the 2014 geopolitical conflict between Ukraine and Russia as an exogenous shock to banks’ branch networks. Our estimates show that the impact of the conflict on the mutual forbearance associated with banks’ multimarket contracts is more pronounced for shock-exposed banks compared to less exposed counterparts and thus the former experiences lower profitability after the conflict.
JEL classification:

Original language	English
Article number	gpz041
Journal	Oxford Economic Papers
DOIs	https://doi.org/10.1093/oep/gpz041
Publication status	Published - 7 Jun 2019

Keywords

multimarket competition
mutual forbearance hypothesis
profitability
difference-in-differences
geopolitical shock

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10.1093/oep/gpz041Licence: None: All rights reserved

Pham_et_al_Multimarket_competition_and_profitability_Oxford_Economic_Papers_2019
This is a pre-copyedited, author-produced PDF of an article accepted for publication in Oxford Economic Papers following peer review. The version of record Tho Pham, Oleksandr Talavera, Junhong Yang, Multimarket competition and profitability: evidence from Ukrainian banks, Oxford Economic Papers, , gpz041, https://doi.org/10.1093/oep/gpz041 is available online at: https://academic.oup.com/oep/advance-article/doi/10.1093/oep/gpz041/5512296
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title = "Multimarket competition and profitability: evidence from Ukrainian banks",

abstract = "This paper examines the impact of multimarket competition on bank performance. Exploiting a unique data set of Ukrainian banks{\textquoteright} branch locations, we construct three measures of multimarket contacts and find their positive effects on profitability. This finding supports the mutual forbearance hypothesis: the higher number of overlapped markets increases familiarity and similarity among multimarket rivals and makes them reluctant to compete aggressively. Further, we establish an identification strategy using the 2014 geopolitical conflict between Ukraine and Russia as an exogenous shock to banks{\textquoteright} branch networks. Our estimates show that the impact of the conflict on the mutual forbearance associated with banks{\textquoteright} multimarket contracts is more pronounced for shock-exposed banks compared to less exposed counterparts and thus the former experiences lower profitability after the conflict.JEL classification:",

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N2 - This paper examines the impact of multimarket competition on bank performance. Exploiting a unique data set of Ukrainian banks’ branch locations, we construct three measures of multimarket contacts and find their positive effects on profitability. This finding supports the mutual forbearance hypothesis: the higher number of overlapped markets increases familiarity and similarity among multimarket rivals and makes them reluctant to compete aggressively. Further, we establish an identification strategy using the 2014 geopolitical conflict between Ukraine and Russia as an exogenous shock to banks’ branch networks. Our estimates show that the impact of the conflict on the mutual forbearance associated with banks’ multimarket contracts is more pronounced for shock-exposed banks compared to less exposed counterparts and thus the former experiences lower profitability after the conflict.JEL classification:

AB - This paper examines the impact of multimarket competition on bank performance. Exploiting a unique data set of Ukrainian banks’ branch locations, we construct three measures of multimarket contacts and find their positive effects on profitability. This finding supports the mutual forbearance hypothesis: the higher number of overlapped markets increases familiarity and similarity among multimarket rivals and makes them reluctant to compete aggressively. Further, we establish an identification strategy using the 2014 geopolitical conflict between Ukraine and Russia as an exogenous shock to banks’ branch networks. Our estimates show that the impact of the conflict on the mutual forbearance associated with banks’ multimarket contracts is more pronounced for shock-exposed banks compared to less exposed counterparts and thus the former experiences lower profitability after the conflict.JEL classification:

KW - multimarket competition

KW - mutual forbearance hypothesis

KW - profitability

KW - difference-in-differences

KW - geopolitical shock

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Multimarket competition and profitability: evidence from Ukrainian banks

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Keywords

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