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We identify a novel concept of discretionary idiosyncratic volatility proxied by the idiosyncratic volatility component not related to the non-systematic industry volatility as a source of agency problems that have implications for firms’ cash holdings and their investment decisions. We find that firms with low discretionary idiosyncratic volatility, which likely captures discretionary effort and risk-taking by managers, have smaller cash reserves. Moreover, while high discretionary idiosyncratic volatility firms spend cash internally (internal capital building), low discretionary idiosyncratic volatility firms use it for external acquisitions, consistent with the “quiet life” hypothesis. Our findings thus indicate a need for reinforcement of existing regulations and corporate laws to control for agency costs, which could in turn reduce firm risk and the probability of financial meltdown at the aggregate level.

This study explores whether product market competition is a substitute for or complementary to good internal governance through promoter holdings. Specifically, it examines the impact of product market competition on the linkage between promoter ownership and firm value and investigates whether this impact varies with the type of blockholders and level of ownership.

The authors used a fixed-effect panel regression method to analyze 1,136 National Stock Exchange-listed firms with 10,770 observations between the years 2005 and 2017. The authors computed product market competition using the Hirschman–Herfindahl Index and used the two-stage least squares regression model to address the issue of endogeneity.

Competition is a substitute for good corporate governance, especially in highly competitive industries, while promoters enhance firm value only in less competitive industries. This supports the theory that competition hinders a manager's “quiet life” hypothesis and creates disciplinary pressure to perform well. Additionally, the authors find that competition acts as a complement to promoters who are state-owned blockholders, while it acts as a substitute for promoters who are family-owned and private-owned blockholders.

This is possibly among the earliest attempts to integrate promoter ownership, product market competition, and firm value with the type of blockholder, especially in the context of the Indian market after 2005. The authors also provide evidence of situations in which both external and internal governance mechanisms either synergize or mitigate each other.

This study aims to consider the effect of financial (banking) freedom and competition on bank efficiency.

With data from 11 Sub-Saharan African countries over the period 2006-2012, the study estimates both competition (market power) and bank cost efficiency using the same stochastic frontier framework. Subsequently, Tobit models, including instrumental variable Tobit regression, are used to assess how financial freedom affects the relationship between competition and bank efficiency.

The results show that increase in market power (less competition) leads to greater bank cost efficiency, but the effect is weaker with higher levels of financial freedom. This is not consistent with the quiet life hypothesis.

Policymakers usually take the view that opening up banking markets to greater competition may lead to higher efficiency. However, the results have shown that allowing banks to maintain some level of market power may be necessary to ensure banking system efficiency.

This study deepens the understanding of the inconsistent relationship between competition and bank efficiency, by using the same framework to measure both competition and efficiency, and by providing new empirical evidence on how the level of financial freedom affects this relationship.

The purpose of this paper is to estimate oligopsony power in the upstream factor market and oligopoly power in the downstream product market. On this basis, the paper intends to examine the effects of both oligopsony and oligopoly power as well as ownership on technical efficiency which were rarely discussed in previous studies.

First, based on the stochastic frontier production function, the paper constructs a new model that is capable to estimate oligopsony power for each observation. Second, the paper employs the popular dual stochastic frontier cost function to estimate marginal cost as well as oligopoly power. Then, the system GMM method with different sets of instrumental variables is applied to test the effects of the two-sided market power and ownership on technical efficiency.

Using unbalanced panel data at the firm level, the paper demonstrates that oligopsony power is significantly variant across different sectors. The most notable point is that oligopsony power in China’s soya and peanut oil industries is negative, while that in pork and beef industries is much stronger than those in other industries. In addition, state-owned enterprises (SOEs) are found to be less technically efficient in most of the selected industries, while SOEs with higher oligopsony power tend to be more technically efficient than non-state-owned enterprises(NSOEs), which is consistent with the quiet life hypothesis.

This paper sheds light mainly on three aspects. First, it proposes a new model to estimate oligopsony power for each single firm. Second, it tests the effect of oligopsony power on technical efficiency. Third, it distinguishes the differential effect of oligopsony power on technical efficiency between SOEs and NSOEs.

The purpose of this paper is, from a resource accumulation and resource allocation perspective, to examine the variant effects of government subsidies among firms with varying levels of market power and to test how industry competition moderates the relationship between market power and allocative efficiency of government subsidies.

This study explores the relationship between government subsidies and firm performance from a resource-based view. The authors study the moderating role of market power and three-way interaction between subsidy, market power and industry competition on firm performance. The authors test their hypotheses using a sample of Chinese A-share manufacturing firms from 2006–2019. The authors apply firm-level panel data regressions and conduct a series of robustness tests. The marginal effect of market power and industry competition is explored via three-way moderator effect models.

This study finds that government subsidies are negatively related to firm performance. Market power, on average, strengthens the negative effect of government subsidies on performance, but such a reinforcement effect is neutralized when industry competition is intense. Government subsidies are least efficiently used when firms have market power and industry competition is low. In addition, the authors use different forms of firm performance and a various of robustness tests to verify their assumptions.

This paper contributes to the literature as follows. First, the authors look into subsidy–performance problem from the perspective of the resource-based view and contribute to explaining and mitigating the divergence of current findings on the subsidy–performance relationship. Second, the authors introduce market power and industry competition as moderators to study how resource allocative efficiency affects the subsidy–performance relationship. Third, the authors propose that managerial incentives have played an important role in the allocation of government subsidies, which enriches management practices.

The purpose of this paper is to examine the operational efficiency and effects of market concentration and diversification on the efficiency of Chinese and Indian banks in the 1997-2011 period.

This study employs the two-stage bootstrap procedure of Simar and Wilson (2007) to obtain valid inferences on the efficiency scores and the efficiency determinants.

Using data set for each country separately, the authors found that the bias-corrected cost efficiency displays an upward trend in Chinese and Indian banks. This trend is consistent with profit efficiency among Chinese banks, but the trend is unclear in Indian banks. Market concentration is negatively related to cost and profit efficiencies of Chinese banks. However, market concentration is positively associated with cost efficiency, but unrelated to profit efficiency of Indian banks. In Chinese banks, diversification of revenue, earning assets and non-lending earning assets are associated with increasing profit efficiency, but their effects to cost efficiency are not clear. In Indian banks, diversification of earning assets increases profit efficiency while there are cost efficiency losses from diversification of revenue and earning assets.

Bank regulators and supervisors in China should consider establishing policies to reduce market concentration and encourage diversification of revenue, earning assets and non-lending earning assets, while increasing concentration and diversification of earning assets should be encouraged in Indian banks.

To the best of the authors’ knowledge, this is the first study employing the double bootstrap procedure proposed by Simar and Wilson (2007) which can address the problem of the two-stage data envelopment analysis or SFA estimator in the efficiency literature on Chinese and Indian banks that efficiency scores obtained in the first stage are inter-dependent, and hence violating the basic assumption in regression analysis in the second stage.

The present study assesses the commercial bank profit efficiency and its relationship to banking sector competition in a rapidly growing emerging economy, India from 2009 to 2019 using stochastic frontier analysis (SFA).

Lerner indices, conventional and efficiency-adjusted, quantify competition. Two SFA models are employed to calculate alternative profit efficiency (inefficiency) scores: the two-step time-decay approach proposed by Battese and Coelli (1992) and the recently developed single-step pairwise difference estimator (PDE) by Belotti and Ilardi (2018). In the first step of the BC92 framework, profit inefficiency is calculated, and in the second step, Tobit and Fractional Regression Model (FRM) are utilized to evaluate profit inefficiency correlates. PDE concurrently solves the frontier and inefficiency equations using the maximum likelihood process.

The results suggest that foreign banks are less profit efficient than domestic equivalents, supporting the “home-field advantage” hypothesis in India. Further, increasing competition drives bank managers to make riskier lending and investment choices, decreasing bank profit efficiency. However, this effect varies depending on bank ownership and size.

Literature on the competition bank efficiency link is conspicuously scant, with a focus on technical and cost efficiency. Less is known regarding the influence of competition on bank profit efficiency. The article is one of the first to examine commercial bank profit efficiency and its relationship to banking sector competition. Additionally, the study work represents one of the first applications of the FRM presented by Papke and Wooldridge (1996) and the PDE provided by Belotti and Ilardi (2018).

There is ample empirical evidence to show that larger banks are more efficient than smaller banks in developed countries. However, there is very little empirical evidence to show that in small developing economies, such as Vietnam, bank size is associated with increased risk, especially credit risk. This paper aim to provide empirical evidence to fill in this gap. This paper employs a slack-based directional distance function using the intermediation approach in measuring the inefficiency of banks in Vietnam during the period 2006–2015. Non-performing loans are used as an undesirable output to capture credit risk. The results show that small banks are more efficient than large banks at the mean level and across the entire distributions of inefficiency of the two groups. Input waste, output shortage and risk surplus of big banks are nearly three times higher than those of small banks. The results are robust under constant and variable returns to scale for production technologies. The study’s empirical results contribute to the ongoing debate on the merits of enlarging bank size in a small transitional economy and suggest that policy makers should pay attention to the risk and inefficiency of large banks to enhance the performance of Vietnam's banking system as a whole.

This paper uses the non-radial slack-based directional technology distance function developed by Färe and Grosskopf (2010) to estimate the efficiency of banks using the data envelopment analysis technique. Data for 44 commercial banks are used.

The empirical results of the paper contribute to the ongoing debate on the merits of enlarging bank size in a small transitional economy and suggest that policy makers should pay attention to the risk and inefficiency of large banks to improve the performance of Vietnam's banking system as a whole.

This paper extends the extant literature by examining whether efficiency is associated with size in a typical transitional developing economy. The classic Cournot model, the structure-conduct-performance and the efficiency structure hypotheses state that larger banks are more efficient than smaller banks (Bikker and Bos, 2008). Empirical studies of Berger (2003), Mester (2005), Wheelock and Wilson (2012) lend support to the statement in developed countries. However, not much empirical literature focuses on small developing economies such as Vietnam to show that bank size is associated with increased risk, especially credit risk. The study’s empirical results show that size enlargement is not positively associated with risk-adjusted efficiency. Input waste, output shortage and risk surplus of big banks are nearly three times higher than those of small banks. The results are robust under constant and variable returns to scale for production technologies.

The paper attempts to analyze vertical product differentiation as a strategy pursued by European banks seeking greater market power and higher reputation for quality, and to examine whether this entails losses in banking efficiency.

First, the empirical analysis seeks to demonstrate whether borrowers at banks in Europe are willing to pay a premium to operate with banks that attempt to increase their reputation for quality in the market, i.e. whether banks use quality to vertically differentiate and so soften competition. To test such hypothesis requires us to define an empirical model with variables that describe certain characteristics of banking quality as explanatory variables of the loan interest to the market interest rate margin. This model is estimated by two stage least squares. Second, the paper seeks to test whether the market power derived from vertical product differentiation (quality reputation) prevents banks from operating efficiently. To test this hypothesis first we estimated cost efficiency taking into account bank risk preferences and then we define an empirical model that relates the results on efficiency with the margin of interest loan rate over the market interest rate.

The results show that less competition, deriving from a bank's ability to differentiate its services from those of its rivals through quality, is positive because it helps to provide a more stable banking system. Moreover, the banking market power generated by investing in quality does not prevent banks from operating efficiently from a production point of view.

The findings are consistent with the view that European banks soften competition by being more stable, and this does not prevent cost efficiency. So it seems that the regulatory authorities should improve their solvency measures since borrowers’ preferences are to maintain relationships with non‐fragile banks, and on the other hand banks’ risk preferences seem to be to look for sound borrowers.

Frontier cost efficiency scores that account for bank's risk preference are able to be related with customer preferences based on the model of the industrial organization (10) based on vertical product differentiation in banking.

This is the first paper that relates vertical product differentiation with the results obtained from the literature on x‐efficiency. It is also the first paper that studies the impact of banking market power jointly with cost efficiency in social efficiency when market power comes as result of investing in reputation for banking quality.

The purpose of this paper is to investigate the relation between industrial concentration and technical inefficiency in the Indonesian food and beverages industry using a dynamic performance measure (dynamic technical inefficiency) that accounts for the presence of adjustment costs.

This research uses panel data of 44 subsectors in the Indonesian food and beverages industry for the period 1980-2014. The dynamic input directional distance function is applied to estimate the dynamic technical inefficiency. Further, the Granger causality between industrial concentration and dynamic technical inefficiency is tested using a dynamic panel data model. A bootstrap truncated regression model is finally applied to estimate the relation between industrial concentration and dynamic technical inefficiency based on the results from the Granger causality test.

The results show that the Indonesian food and beverages industry has a high dynamic technical inefficiency. Investigation of the causality of the relation shows that industrial concentration has a positive effect on dynamic technical inefficiency at the subsector level, with no reversed causality. The results suggest that the quiet life hypothesis applies to the Indonesian food and beverages industry.

The literature investigating the relation between industrial concentration and performance relies on static measures of performance, such as technical efficiency. Static measures provide an incorrect metric of the firms’ performance in the presence of adjustment costs associated with investment. Therefore, this research has a contribution in measuring dynamic technical inefficiency that accounts for the presence of the adjustment cost as well as its relation with industrial concentration in the Indonesian food and beverages industry.