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Fresh evidence on the relationship between market power and default risk of Indian banks

Khan, Mohammad Azeem and Ahmad, Wasim (2022) Fresh evidence on the relationship between market power and default risk of Indian banks. Finance Research Letters, 46. ISSN 1544-6123

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Identification Number: 10.1016/j.frl.2021.102360

Abstract

In a uniquely designed empirical set-up involving a large set of Indian banks, this study establishes the relationship between market-based measures of default risk represented by Distance-to-Default (DD) and Distance-to-Capital (DC), and the market power reflected through the efficiency-based Lerner index. The results exhibit an inverse relationship between bank market power and bank default risk. Gross Nonperforming Assets (GNPAs), economic growth, and stock market volatility appear as other significant determinants of bank default risk. In the Indian context, this is the first study that utilizes a bank risk measure that incorporates the capital adequacy thresholds embedded under the revised Prompt Corrective Action (PCA) framework.

Item Type: Article
Official URL: https://www.sciencedirect.com/journal/finance-rese...
Additional Information: © 2021 Elsevier Inc.
Divisions: India Observatory
Subjects: H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
Date Deposited: 31 Mar 2022 14:03
Last Modified: 25 Apr 2022 09:39
URI: http://eprints.lse.ac.uk/id/eprint/114551

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