IT Use, Productivity, and Market Power in Banking
Michael Koetter, Felix Noth
Journal of Financial Stability,
No. 4,
2013
Abstract
Information management is a core process in banking that can resolve information asymmetries and thereby help to mitigate competitive pressure. We test if the use of information technology (IT) contributes to bank output, and how IT-augmented bank productivity relates to differences in market power. Detailed bank-level information on the use of IT reveals a substantial upward bias in bank productivity estimates when ignoring banks’ IT expenditures. IT-augmented bank productivity correlates positively with Lerner markups. A mere increase in IT expenditures, however, reduces markups. Results hold across a range of bank output definitions and productivity estimation methods.
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Do Banks Benefit from Internationalization? Revisiting the Market Power–Risk Nexus
Claudia M. Buch, C. T. Koch, Michael Koetter
Review of Finance,
No. 4,
2013
Abstract
We analyze the impact of bank internationalization on domestic market power (Lerner index) and risk for German banks. Risk is measured by the official declaration of regulatory authorities that a bank is distressed. We distinguish the volume of foreign assets, the number of foreign countries, and different modes of foreign entry. Our analysis has three main results. First, higher market power is associated with lower risk. Second, holding assets in many countries reduce market power at home, but banks with a higher share of foreign assets exhibit higher market power. Third, bank internationalization is only weakly related to bank risk.
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