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Riyana Miranti
University of Canberra
Economics, Econometrics & Finance

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ARE GOVERNMENT BANKS LESS COMPETITIVE THAN PRIVATE BANKS? EVIDENCE FROM INDONESIAN BANKING Tri Mulyaningsih; Anne Daly; Phil Lewis; Riyana Miranti
Journal of Applied Economics in Developing Countries Vol 1, No 1 (2014): Journal of Applied Economics in Developing Countries
Publisher : MESP–FEB UNS

Show Abstract | Download Original | Original Source | Check in Google Scholar | DOI: 10.20961/jaedc.v1i1.89994

Abstract

Literature suggests that compared to private banks, state-owned banks have lower incentives to maximize profit. This study aims to investigate the possible different competitive behaviour of state-owned banks and private banks. The recent refinement of Panzar-Rosse method by Bikker, Shaffer, and Spierdijk (2011) was employed to estimate the competitive behaviour of state-owned and private banks. The empirical estimation of Fixed-Effect approach shows that the H-statistics of the state-owned banks was significantly smaller than of the private banks. It implies that private banks behaved more competitively than the state-owned banks. The private bank market was close to perfect competition or monopolistic competition where bank products are regarded as perfect substitutes for one another. In contrast, state-owned banks attempted to collude rather than to compete to generate a maximum profit. State-owned banks behaved less competitive because they served the interest of government or politician, have a long hierarchical organisational design, receive an interest rate subsidies and an implicit guarantee from government against failure and their business are being controlled by government.Keywords: Bank ownership, competitive behaviour, Panzar-Rosse
Co-Authors Anne Daly Phil Lewis Tri Mulyaningsih Tri Mulyaningsih