The impact of financial and competition conglomeration policies on banking efficiency and risk in Indonesia

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Financial conglomerates and bank competition play a significant role in developing efficiency levels and increased risk exposure. This study aims to formulate a conceptual model of the policy’s impact of financial conglomerates and bank competition on bank efficiency and stability risk. This research is conducted using data samples from 90 commercial banks in Indonesia from 2010 to 2017. The empirical analysis is carried out using the dynamic data panel or Generalized Method of Moments (GMM). The study results show that policies of financial conglomerates and competition have a positive effect on banking efficiency. These results support previous empirical studies, where financial conglomeration, in general, can improve banking efficiency. Furthermore, it is found that the interaction between financial conglomerates and competition has a positive effect on banking stability. The implication of this research shows that the potential risks that cause distortion become irrelevant when the banking structure is more competitive. Furthermore, this study recommends the need to build the ideal financial conglomerate institutional structure to strengthen and encourage the role of more competitive banks.

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    • Table 1. Research variables
    • Table 2. Variable description
    • Table 3. The effect of bank conglomeration and competition (COS⋅HHI or CON⋅HHI) on bank efficiency (EFF1)
    • Table 4. The effect of bank conglomeration and competition (COS⋅HHI or CON⋅HHI) on bank efficiency (EFF2)
    • Table 5. The effect of bank conglomeration and competition (COS⋅HHI or CON⋅HHI) on banking insolvency risk (ZSCORE)
    • Table 6. The effect of bank conglomeration and competition (COS⋅HHI or CON⋅HHI) on banking credit risk (LLP)
    • Conceptualization
      Teguh Supangkat, Eleonora Sofilda, Muhammad Zilal Hamzah, Ari Mulianta Ginting
    • Data curation
      Teguh Supangkat
    • Formal Analysis
      Teguh Supangkat, Muhammad Zilal Hamzah
    • Funding acquisition
      Teguh Supangkat, Eleonora Sofilda
    • Investigation
      Teguh Supangkat
    • Methodology
      Teguh Supangkat
    • Project administration
      Teguh Supangkat, Eleonora Sofilda
    • Resources
      Teguh Supangkat, Eleonora Sofilda, Muhammad Zilal Hamzah
    • Software
      Teguh Supangkat
    • Writing – original draft
      Teguh Supangkat
    • Supervision
      Eleonora Sofilda, Muhammad Zilal Hamzah, Ari Mulianta Ginting
    • Validation
      Eleonora Sofilda, Muhammad Zilal Hamzah, Ari Mulianta Ginting
    • Writing – review & editing
      Eleonora Sofilda, Muhammad Zilal Hamzah, Ari Mulianta Ginting